The Affordable Care Act (ACA) introduced significant changes to the healthcare landscape in the United States, with specific implications for employers. For businesses with 50 or more full-time employees, compliance with the ACA is not optional—it’s a legal obligation. Failure to meet the ACA’s requirements can result in financial penalties that can have a substantial impact on your business.
In this article, we’ll outline the penalties for non-compliance with the ACA, emphasizing the importance of understanding and adhering to its regulations.
Penalties for Applicable Large Employers
Applicable large employers, those with 50 or more full-time or full-time equivalent employees, are subject to specific ACA penalties. These penalties can be incurred in two main areas:
Employer Shared Responsibility Payment:
The Employer Shared Responsibility Payment (ESRP) is one of the primary penalties under the ACA. It applies to employers who do not offer affordable and minimum-value health coverage to their full-time employees. The ESRP has two components:
- The “A” Penalty: This penalty is levied when applicable large employers do not offer health coverage to at least 95% of their full-time employees and their dependents. Employers may incur this penalty if even one full-time employee receives a premium tax credit through a health insurance marketplace.
- The “B” Penalty: This penalty applies if the coverage offered by the employer does not meet affordability and minimum value standards. Affordability means that the employee’s required contribution for self-only coverage does not exceed a certain percentage of their household income. Minimum value refers to the coverage’s ability to cover a substantial portion of healthcare costs. If one or more full-time employees receive a premium tax credit due to unaffordable or inadequate coverage, the “B” Penalty may be imposed.
Applicable large employers are also required to report their health coverage information to the Internal Revenue Service (IRS) and provide statements to employees. Failing to comply with these reporting requirements can result in separate penalties. These penalties are imposed if an employer:
- Fails to file correct information returns (Form 1094-C and 1095-C).
- Fails to furnish correct statements to full-time employees (Form 1095-C).
- Fails to comply with the due dates for filing and furnishing the required forms.
The Impact of Penalties
Penalties for non-compliance with the ACA can have significant financial consequences for businesses. The exact amount of the penalties depends on various factors, including the number of full-time employees and the extent of non-compliance. In some cases, the penalties can be substantial, potentially running into thousands of dollars per affected employee.
Preventing ACA Penalties
Avoiding ACA penalties requires a thorough understanding of the law’s requirements and diligent compliance. To prevent penalties, consider the following best practices:
- Ensure that your health coverage meets affordability and minimum value standards.
- Offer coverage to at least 95% of your full-time employees and their dependents.
- Keep accurate records and data to support your reporting obligations.
- Seek legal advice or consult ACA compliance experts to navigate the complex regulatory landscape.
Understanding and complying with the ACA is essential for businesses with 50 or more employees. The penalties for non-compliance can be financially burdensome, affecting your bottom line and overall business stability. By adhering to the ACA’s requirements and diligently monitoring your compliance, you can avoid penalties and contribute to the well-being of your workforce while maintaining your business’s legal and financial integrity.