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ACA Non-Compliance: Costly IRS Penalties Are On Their Way!

Posted by: on December 20, 2017 in Corporate News PEO


Businesses may soon be facing some stiff penalties for Affordable Care Act Non-compliance. Employers may just now be receiving the Letter 226J for IRS filings related to the 2015 tax year. Letter 226J is a notice to an employer for shared responsibility payment (ESRP) for failing to comply with the Affordable Care Act. It also contains instructions on how the employer should respond. Applicable Large Employers (ALEs) who have been in ACA non-compliance can expect the Letter 226J for the 2016 tax year to be sent out soon as well.

A nationwide survey of businesses conducted in 2016 by Zywave found that just over a third of employers didn’t know what ACA information was required to be reported to the IRS, and less than 50 percent of those respondents were confident in their ability to satisfy ACA reporting requirements. In 2017, there are still employers who admit to being clueless on what is required. Employers who fall into the “unsure” category do have the option of turning to a PEO that has experts in ACA compliance ready to help. As penalties increase each year, and the IRS swiftly catches up on enforcement, it’s more important than ever to be confident in your ACA compliance.

The IRS recently announced the penalty amounts for the 2017 tax year, and although the status of the ACA has been threatened a few times throughout the past year, the Affordable Care Act has remained in place and so have the requirements for compliance. While Congress debated - and failed to repeal - the ACA, the IRS continued to move forward with their plans to enforce the ACA and prepared for the mandated information filings of the 2017 tax year information in 2018.

If you’ve fallen short on ACA requirements, here are what the four penalties will look like in 2017:

  1. Employer Shared Responsibility Payment (ESRP) for Failure to Offer Minimum Essential Coverage. This penalty applies if (1) during any month of the tax year, minimum essential coverage was not offered to at least 95 percent of the company’s full-time employees (and their dependents), and (2) if at least one full-time employee received a premium tax credit (PTC) for coverage purchased through the Marketplace. This penalty is calculated by the number of all full-time employees (not just those who received PTCs) minus 30, multiplied by $2,260. The IRS allows for a business to subtract 30 employees from its total employee count, regardless of the number of locations at which employees are located. For instance, a company with 55 full-time employees would be liable for $56,500. (55 - 30 = 25, multiplied by $2,260 = $56,500)

  2. Employer Shared Responsibility Payment for Failure to Offer Affordable Minimum Essential Coverage that Provides Minimum Value. This is assessed if Penalty 1 does not apply, and applies if healthcare coverage is offered to at least 95 percent of full-time employees (and their dependents), but at least one full-time employee received a PTC to help pay for coverage through the marketplace. This situation may occur because an employer did not offer coverage to that particular employee or because the coverage the employer offered that employee was either unaffordable or did not provide minimum value. In situation, a penalty would only be against the employees receiving the PTCs, not the full-time employee count. This penalty would be calculated by multiplying the number of full-time employees receiving PTCs by $3,390, then multiplying by the number of months PTCs were received, and then dividing by 12. Using the example of 5 full-time employees receiving PTCs for three months, the company would incur penalty of $4,237.50. (5 x $3,390 = $16,950 x 3 = $50,850 ÷ 12 = $4,237.50)

  3. Failure to File Correct Information Returns. ALEs must provide a Form 1095-C to each of their full-time employees, whether on paper by mail, or electronically with employee’s consent. If the return is not filed by the filing deadline, the full penalty is assessed per applicable individual return not filed. This is calculated by multiplying $260 by the number of applicable individual forms not filed. For example, if an employer failed to file 1095-C forms for 75 employees by the deadline, they would be liable for $19,500. ($260 x 75 = $19,500)

  4. Failure to Furnish Correct Payee Statements. If the ACA-mandate health insurance information is not provided to employees by the IRS deadlines, the penalties are assessed per applicable employee not receiving the required information. This one is subject to the same penalty rate as Failure to File Correct Information Returns, so for each applicable employee you would multiply by $260. If 75 employees did not receive the required information by the deadline, the employer would have incurred a penalty of $19,500 as well. ($260 x 75 = $19,500)

  5. Having a professional to guide you through the today’s complicated compliance environment can save you frustration and potentially lots of money. Emplicity offers Administration Compliance guidance and so much more as your local PEO provider.

    Emplicity understands that HR Outsourcing should be simple and meaningful. As a Professional Employer Organization (PEO), we strive to be a great partner in supporting your business. If you would like to request more information on how we can assist your needs, please reach out to us at 877-476-2339. We are located in California – Orange County, Los Angeles, and the greater Sacramento and San Francisco area.

    NOTICE: Emplicity provides HR advice and recommendations. Information provided by Emplicity is not intended as a substitute for employment law counsel. At no time will Emplicity have the authority or right to make decisions on behalf of their clients.