Ensuring your business remains in compliance with federal laws and regulations is more important now than ever before. Especially since the IRS increased ACA (Affordable Care Act) penalties for non-compliance with the Employer Mandate.

Also, the extension to the American Rescue Plan’s enhanced Premium Tax Credits (PTCs) can lead to more penalties for employers. PTCs help trigger the IRS to identify ACA non-compliance. Adding to the headache is one of the 2022 Inflation Reduction Act’s provisions – $80 billion for IRS-increased tax enforcement. So as a business owner, how can you ensure ACA compliance and avoid costly penalties?

In this article, we’ll outline the ACA penalty changes for 2023 and explain how much non-compliance could cost your business. Also, we’ll reveal the most effective way to avoid ACA penalties.

If you’re interested in exploring ACA filing services, contact us.

What are the ACA Penalty Changes for 2023?

The ACA’s primary goal is to ensure that more Americans are able to access affordable healthcare coverage. To this end, large employers (minimum of 50 full-time staff) must follow strict regulations. In other words, business owners who fail to comply risk ACA penalties. The IRS has increased the ACA penalty amounts for 2023, reflected on its recently updated Affordable Care Act Questions and Answers page (question 55).

For 2023, the 4980H(a) penalty amount rose from $2,000 to $2,880, and the 4980H(b) penalty increased from $3,000 to $4,320. Both are yearly amounts, but the IRS calculates penalties monthly. However, these are not the only changes impacting employers.

The affordability threshold has decreased from 9.61% in 2022 to 9.12% for plan years beginning on or after January 1, 2023.

What does that mean?

The affordability threshold is a yardstick for employers to determine whether their employer-sponsored health coverage is affordable for employees. Employers who don’t comply will receive Letter 226J, an employment mandate penalty letter. According to the IRS, ‘this letter will spell out all your rights, including your right to appeal.’

Employers, be aware. In a memorandum released by the IRS Office of Chief Counsel, the IRS stated there is no statute of limitations for ACA penalties, meaning that ACA non-compliance penalties for any reporting year can be issued to employers at any time.

ACA Penalty 4980H(a) Amount for 2023

For 2023, the 4980H(a) penalty is $240 a month, which adds up to $2,880, per employee, per year. So when does the IRS issue the 4980H(a) penalty?

According to the IRS, this is when the ALE (an applicable large employer with at least 50 full-time employees) fails to offer minimum essential coverage (MEC) to at least 95% of its full-time employees (and dependents) and at least one full-time worker receives the premium tax credit for purchasing coverage through the Marketplace.

Let’s look at an example.

Susan’s Natural Skin Care Emporium employs 100 full-time workers. The company offers MEC to 92 of them, which is 92% of its workforce and just below the ACA’s 95% requirement. The other eight staff members (needing an alternative health care plan) signed up for coverage through the state ACA health exchange. Subsequently, the health exchange issued a PTC to the eight employees for all 12 months of the year.

This sounds fine, but when the employees included the PTC information on their tax returns, the IRS was triggered to compare that data to information filed by their employers. The IRS found a match, identified how many full-time workers Susan’s Natural Skin Care Emporium employed, and calculated a 4980H(a) penalty. Penalties can add up quickly when calculated for your entire workforce, but there is a 30-employee exclusion that will apply.

So, what will the damage be?

The IRS issued a whopping $201,600 fine to Susan’s Natural Skin Care Emporium.

Here’s how to calculate the fine:

12 months x $240 = $2,880

$2,880 x (100-30) = $201,600

ACA Penalty 4980(b) Amount for 2023

The 4980H(b) ACA penalty is $360 a month or $4,320 per year per employee for the 2023 tax year. It’s different from the 4980H(a) penalty, as the IRS assesses it on a per-violation basis. A large employer is in violation when they offer health coverage to a minimum of 95% of full-time staff that the IRS deems unaffordable, not of minimum value, or both. The ALE also has to have one of the workers receive a PTC for purchasing coverage through the Marketplace.

Using an example, let’s see how a 4980H(b) ACA penalty could affect a workplace.

Pablo’s Pancake Palace employs 200 ACA full-time employees. All staff members have received an offer of coverage for 2023. However, the offers fell short of the IRS-mandated 9.12% affordability threshold for this tax year. The coverage was unaffordable for all employees, but only 70 workers obtained a PTC from the state health exchange.

Pablo’s non-compliance caused the company to be hit with a 4980H(b) penalty of $302,400.

Here’s how to calculate the fine:

12 months x $360 = $4,320

$4,320 x 70 = $302,400

If an employer violates both ACA non-compliance requirements for the same tax year, the IRS will not issue both penalties. Instead, the employer must pay the largest fine.

Why Outsource ACA Filing for Your Business?

The Affordable Care Act requires large employers to offer affordable healthcare to their employees, as well as keep meticulous records to demonstrate compliance.

But regulations are complicated, and business owners risk hefty fines by:

  • Not meeting the ACA requirements as set out above

  • Filing inaccurately

  • Filing late

  • Not filing at all

So how can you stay on the right side of the IRS? Let us help.

Asure’s comprehensive ACA Filing services will help you navigate a compliance labyrinth by:

  • Giving you a clear overview of your staff’s hours so you can quickly identify eligibility.

  • Meticulously completing all required forms and filing the 1094 and 1095 with the IRS.

  • Assigning and updating the proper codes for each worker’s offer of coverage.

  • Giving you a monthly preview report.

  • Assigning you an ACA Specialist for personal support.

Staying compliant is easy with our support; find out how we can help you.

Moving Forward

The ACA aims to provide more Americans with affordable healthcare, but its regulations are strict and complex. In 2023 ACA penalties have increased significantly, meaning non-compliant employers risk substantial fines. Considering some of the Inflation Reduction Act’s provisions include $80 billion for IRS tax enforcement, business owners should consider engaging with an expert to help them navigate the ACA’s myriad of rules.

Asure can keep your company compliant and avoid penalties, so you can concentrate on running your business.

If you’d like to speak to an HR expert about your business, connect with us.

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