Employers who don't comply with Obamacare face higher penalties

It’s been more than seven years since the employer mandate of the Affordable Care Act went into effect.

The law requires employers with 50 or more full-time employees or equivalents to offer health coverage that meets certain standards or face penalties.

While COVID and inflationary pressures have been top of mind for employers, businesses would be wise to maintain compliance given penalties are increasing this year and the IRS is actively issuing penalty notices, experts say.

“The employer mandate isn’t going away,” says Joanna Kim-Brunetti, executive vice president of regulatory affairs at Los Angeles-based Trusaic, a software and services company that offers compliance services. “If you’re not complying you’re going to get caught.”

She said she’s seen “plenty” of penalty notices going out for noncompliance, but due to the IRS backlog they’re still working on the 2019 tax year.

The IRS confirmed to Newsday it’s currently working Tax Year 2019 cases and will start sending Tax Year 2020 employer notices later this year.

“IRS enforcement efforts for the ACA employer mandate this year will be consistent with our efforts in previous years,” the agency noted.

Coverage minimums

Under the mandate, employers with 50 or more full-time and full-time equivalent employees must offer minimum essential coverage to at least 95% of their full-time workforce and their dependents and sets a minimum baseline of coverage and affordability, according to healthinsurance.org, an industry-funded site. Otherwise, employers face penalties, Kim-Brunetti says. For more on these definitions see tinyurl.com/2u5p376v.

For the 2022 tax year, the ACA affordability threshold is 9.61%, down from 9.83%, Kim-Brunetti says. That means the lowest cost, self-only health coverage offered can’t exceed 9.61% of the employee’s household income.

Increased penalties for the 2022 tax year range are $2,750 (previously $2,700) per employee or $4,120 (previously $4,060) depending on which ACA provision the employer didn’t meet, she says. 

Employers can be subject to such penalties if at least one-full time employee receives a federal premium tax credit (PTC) on a Health Insurance Marketplace/Exchange, Kim-Brunetti says. This credit’s available to people without another offer of affordable coverage.

No more excuses

There had been “Good Faith Transition Relief,” a condition where the IRS waives employer ACA penalty assessments so long as the employer can provide legitimate reasons for missing a reporting requirement by the mandated deadlines, says Susan Accardo, vice president at Accu Data Workforce Solutions in Hicksville, which provides payroll outsourcing.

But the IRS has stated 2020 is the final tax year to take advantage of good faith transition relief, she says.

“Given this situation, employers really need to make sure they are following the ACA reporting requirements,” Accardo says.

While she’s heard the IRS is issuing 2019 penalty notices, none of her clients have received one.

Ed McWilliams, a partner at Bohemia-based Cerini & Associates, a CPA and business advisory firm, said he’s “seen an increase in penalty notices to companies” for 2019 and earlier.

How IRS gets triggered

McWilliams said it’s not so much that employers aren’t offering affordable coverage, but with “more pressing priorities of keeping the doors open” because of the pandemic may not have completed all their reporting requirements.

He said what normally triggers an IRS notice is providing incomplete or inaccurate information on IRS reporting forms or an employee getting a Premium Tax Credit on a health care exchange.

“It can only take one employee receiving a PTC to trigger the penalties, “ says Katie Andersen, director of benefits at Huntington-based Long Island Employee Benefits Group.

She said LIEBG hasn’t seen an increase in penalty letters — she had one client receive a letter for 2019 in 2021 — but has been diligent in keeping clients up-to-date on compliance.

Outside of increased penalties, employers should also note that, with the affordability threshold decreasing to 9.61%, they “may have to lower their employee contributions for 2022 to meet the adjusted requirement,” Andersen says.

They need to take that into account when considering the medical plans they’re offering to employees, as well as review their employee contribution yearly, she says.

The bottom line is “now’s the time for employers to work with their benefits team to ensure they’re in compliance with the 2022 reporting requirements,” says Accardo. Also work with your payroll provider to make sure benefit plan rates are up-to-date and employees are classified correctly, she says.

By Jamie Herzlich

jherzlich@aol.com

Herzlich writes the Small Business column in Newsday.