While the federal tax penalty imposed by the Affordable Care Act on uninsured individuals is no longer in effect, the mandate that certain-sized employers provide health insurance to their full-time workers is still very much alive and well.
Employers who fail to comply face penalties.
In fact, IRS penalty notices are being issued, and experts expect penalties to increase for the 2019 tax filing season.
“The IRS has gotten stricter and stricter in enforcement operations,” said Joanna Kim-Brunetti, vice president of regulatory affairs at First Capitol Consulting, a company in Los Angeles that offers ACA compliance services.
Under the ACA mandate, employers with 50 or more full-time and full-time-equivalent employees must provide minimal essential coverage to at least 95 percent of their full-time workforce and their dependents and provide coverage that’s “affordable” and provides “minimum value” to employees or face penalties, she said.
The terms “affordable” and “minimum value” have specific meanings under the ACA (see shared responsibility provisions at irs.gov/affordable-care-act/employers).
Penalties for the 2019 tax year (as annually adjusted) are anticipated to range from $2,500 per employee (up from $2,320) to $3,750 per employee (up from $3,480) depending on which ACA provision the employer didn’t meet, said Kim-Brunetti.
Employers can be subject to such penalties if at least one full-time employee receives a federal premium tax credit/subsidy and buys individual health insurance on a Health Insurance Marketplace/Exchange.
The IRS issued more than $4.5 billion in penalties to employers for the 2015 tax year, when the mandate took effect, according to First Capitol Consulting.
For the 2017 tax year (latest enforcement), the IRS has identified about 50,000 employers that could receive letters with proposed penalties for ACA non-compliance, compared to 31,825 companies in the 2016 tax year, said Tom Franz, director of client services at Integrity Data in Lincoln, Illinois, which provides software and services focused on HR and payroll including ACA compliance.
The 50,000 number is preliminary, disclosed on a June IRS payroll call, he said. The IRS didn’t respond to a request by Newsday to confirm those numbers.
“I think we’re seeing a ramping up of enforcement,” Franz said, noting that 2016 enforcement letters started going out in September 2018, while 2017 enforcement letters started going out four months sooner, May 2019. “We’re seeing an increased cadence and more timely enforcement activities as we go forward.” Employers generally have 30 days from the date on the penalty letter to respond, he added.
To be sure, “many clients were hoping the employer mandate would go away,” said Yvette Hector, a vice president at Associated HCM in Plainview, an HR and payroll company that offers ACA compliance services. (The mandate on individuals went away this year under the GOP Tax Cuts and Jobs Act of 2017.)
Since that hasn’t happened with employers, she cautions clients to keep up with important dates, including the date to furnish employees with Form 1095-C, which among other things provides them withinformation about the health coverage offered by their employer.
Those forms are due to employees on Jan. 31, 2020. Similar forms detailing coverage are due to the IRS by March 31, 2020, if filing electronically and Feb. 28, 2020, if filing on paper, said Ashley Lau, a payroll and HR specialist at Associated HCM.
Employees who work 30 hours or more per workweek or 130 hours per month are considered full-time by ACA guidelines, so employers should continue tracking employee hours and following reporting requirements, says Kerry Grogan, a payroll and HR specialist at Associated HCM.
It pays to comply, because the employer mandate doesn’t seem to be going away anytime soon, said Steven Goldstein, an audit partner at Grassi & Co., a CPA and business advisory firm in Jericho.
It’s “a potential heavy revenue generator for the IRS,” he said, cautioning "the tax penalties could potentially put companies out of business."
He’s seen only three audits involving clients, but all were resolved without penalties. In the meantime, if an employer does receive a penalty, the sum is not be tax-deductible, Goldstein said.
Other ACA changes afoot
The affordability threshold used to determine if employee coverage is affordable will decrease from the current 9.86% to 9.78% in 2020—meaning coverage is affordable if the employer’s lowest cost, self-only plan doesn’t cost the employee more than 9.78% of their annual household income based on the Federal Poverty Level.
Source: First Capitol Consulting