Are you getting an ACA non-compliance letter for Christmas? The IRS has begun to issue proposed penalties to companies that are not offering health care coverage in compliance with the Affordable Care Act (ACA). Letters regarding the proposed penalty assessments are being sent to companies in late 2017.
Since 2015, Applicable Large Employers (ALEs)–or companies with at least 50 full-time or full-time equivalent employees–have needed to make minimum essential care with minimum value affordable for their employees.
For those who haven’t, IRS letter 226J is the wake-up call. Monthly penalties? You got it. Employers have 30 days to respond to a 226J letter.
Code Section 4980H(a) penalty
At least ninety-five percent (70%+ for 2015) of full-time employees and their dependents must be offered an insured or self-insured group health plan, and it must meet minimum value and affordability requirements. This applies to employees working 30+ hours a week and their dependents up to age 26. Spouses are not technically included, but many employers opt to add them in anyway.
Penalties for health coverage that do not meet the thresholds above are calculated like this:
Penalties are equal to $2,080 for 2015, $2,160 for 2016, and $2,260 for 2017–bearing in mind that thresholds for avoiding the penalty are 70%+ coverage in 2015, and 95%+ for 2016 for full-time employees. Let’s call this “penalty value.”
You can subtract 30 from the total number of employees for 2016, and 80 for 2015 when calculating the penalty. Let’s call this value “employee adjustment.”
(number of full-time employees – employee adjustment) x penalty value = total nondeductible penalty
For example, a company offers coverage to just 92% of employees in 2016, with 200 total employees. The penalty is assessed as:
(200 – 30) x $2,160 = $367,200
Code Section 4980H(b) penalty
Minimum value: Healthcare plans should be designed to cover at least 60% of employees’ medical costs. You must certify that you’ve done this on form 1095-C and document how you have verified that you meet this threshold.
Affordability: Self-only coverage for employees should a) cost employees no more than 9.5% of a) Form W-2, box 1, b) employer’s monthly pay, or c) the federal poverty level. Percentages change annually. 2015 – 9.56%, 2016 – 9.66%, 2017 – 9.69%.
Penalties here are large as well: $3,000 and up per employee in your organization.
Note that these penalties apply if at least one full-time employee purchased health coverage on the Marketplace and received a premium credit.
We suggest the following:
Do you want to know more about the 226J IRS letter, need more information on these rules/filings, or want to discuss how to mitigate the risk of falling into a penalized category? Contact Christine Bentson today at firstname.lastname@example.org or 651-407-5808.
Christine Bentson leads the retirement/benefit plan department at Redpath and Company. She specializes in establishing, designing and administering employee benefit and retirement planning services for closely held business clients, as well as preparation of government reporting for welfare benefit plans. Christine is a Retirement Plans Associate and Certified Employee Benefit Specialist, and has provided public accounting services since 1987.More posts by Christine Bentson