As the IRS ramps up enforcement of the Affordable Care Act’s employer shared responsibility provisions after the expiration of good-faith relief from corresponding penalties, a few conditions have changed for applicable “large employers” (ALEs). These companies, defined as those with at least 50 full-time employees who worked an average 30 or more hours per week during the previous calendar year, should ensure they meet information reporting requirements (by filing 1094-C and 1095-C forms for every full-time employee).
The IRS provided relief for tax years 2015 through 2020 as a “transitional” measure. Now, filing late or incorrect ACA information could, without exceptions, cost employers a hefty IRS penalty.
Under the ACA Employer Mandate, ALEs that fail to provide full-time workers with adequate, “affordable” (as defined by the IRS; see below) health coverage are subject to fines or employer shared-responsibility payments (ESRPs).
The IRS lowered the 2022 affordability threshold, also known as the shared-responsibility affordability percentage or cost-sharing limit. That means the maximum cost for an employer-sponsored plan that only covers the employee is now lower.
To stay compliant, ALEs must now provide at least one self-only coverage option for less than 9.61% of an employee’s wages. ALEs meet 2022 affordability requirements if they offer a self-only plan for:
A maximum monthly employee contribution of less than $103.14 (based on the U.S. federal poverty level of $12,880 in annual income), or
9.61% of either an employee’s W-2 wages or hourly rate of pay.
ACA Penalty for Non-Compliance
Because the affordability percentage decreased this year, employers must make changes accordingly to avoid ending up with an unaffordable, non-compliant plan – even though that same plan was considered affordable last year and no other plan changes occurred.
ACA 2022 penalties, or ESRPs, on the other hand, are higher this year than last.
These fines are assessed when:
An ALE does not offer minimum essential coverage to at least 95% of its full-time employees in any given month and when at least one full-time employee receives a premium tax credit to help pay for coverage through the ACA marketplace. Non-compliance will cost ALEs $2,750 per full-time employee minus 30 (the first 30 employees are not counted) in Section 498H(a) penalties.
Those numbers can add up fast. An employer with 75 full-time workers, for example, would pay $123,750 in penalties for not offering health insurance to its full-time staff and if at least one full-time employee buys tax-subsidized health insurance through the marketplace exchange (75 - 30 x $2,750).
When an ALE does not offer minimum essential coverage that is “affordable” (as described above) and provides “minimum value”. Additionally, the employee must decline non-compliant coverage and instead enroll in subsidized coverage on the ACA marketplace exchange.
For the 2022 tax year, the Section 498H(b) penalty for every employee not offered affordable coverage is $343.33 per employee, per month.
Business owners who leverage a trusted certified professional employer organization (CPEO), don’t have to worry about complex ACA reporting or costly penalties. That’s one of the biggest benefits of working with a CPEO like Axcet HR Solutions. We apply best practices to ensure our clients’ reporting is accurate and filed on time and that their health plans meet all ACA requirements.