ACA Update: Election Aside, 2016 Reporting Requirements Remain
While there has been significant speculation about how the results of the 2016 election will impact ACA, the current regulations and accompanying penalties are still in place. The new administration would have a difficult time making any significant changes before the January 31, 2017 deadline to furnish 1095-Cs to employees and enrolled individuals. The Republican Party will not officially take office until January 20, and repealing ACA would require a very detailed replacement plan to ensure millions of Americans do not lose healthcare coverage through the Health Insurance Marketplace (also known as the Exchange). To date, no such plan has been outlined, and employers are still required to comply with the:
- Employer Shared Responsibility requirements
- Information Reporting requirements
Sources of Penalties
ACA regulations require each Applicable Large Employer (ALE) to offer qualifying coverage to full-time employees and to report information about offers of coverage to employees, enrolled individuals, and the IRS. Failure to comply with these requirements can result in the assessment of fines.
Employer Shared Responsibility Penalties (Pay or Play)
Section 4980H of the Internal Revenue Code provides that every ALE must offer its full-time employees Minimum Essential Coverage (MEC) that is affordable and provides Minimum Value (MV) or pay a penalty to the IRS. Section 4980H provides for two alternative fines in subsections (a) and (b). The amounts of the fines are adjusted every year for inflation, and they will continue to increase. Penalties are assessed on a monthly basis.
- 4980H(a): The “A Fine”: Section 4980H(a) requires that each ALE offer MEC to at least 95% of its full-time employees. Failure to comply can result in a penalty that is multiplied by your entire full-time employee population less the employer’s proportionate share of 30. Per each non-compliant month, the penalty is $180 times the number of full-time employees in that month. If, for the entire year, no full-time employees were offered MEC, then the employer would be at risk for $2,160 times the number of full-time employees. Even if there were only 50 eligible employees each month, this could result in a fine as large as $108,000.
- Even if an ALE satisfies the 4980H(a) requirements, an employer may still be at risk for penalties under section 4980H(b).
- 4980H(b): The “B Fine”: Section 4980H(b) requires that each ALE offer MEC that is affordable and provides MV to every full-time employee. Failure to comply can result in a penalty that is multiplied by the number of full-time employees who did not receive such an offer AND received a subsidy (advance premium tax credit) from the Health Insurance Marketplace. Per each non-compliant month, the penalty is $270 times the number of full-time employees in that month who received a subsidy from the Health Insurance Marketplace. If, for the entire year, no full-time employees were offered MEC that is affordable and provides MV, then the employer would be at risk for $3,240 times the number of full-time employees who received a subsidy. Even if there were only 50 eligible employees who received subsidies each month, this could result in a fine of $162,000.
Information Reporting Penalties (Requirements to Furnish and File)
Sections 6055 and 6056 of the Internal Revenue Code provide that every provider of minimum essential coverage (6055) and every ALE (6056) will report coverage information for full-time employees as well as individuals who enroll in coverage. ALEs have an obligation to furnish statements to employees and enrolled individuals and file information returns with the IRS.
A reporting entity that fails to comply with the filing and statement furnishing requirements of section 6055 or 6056 may be subject to penalties under section 6721 for failure to file a correct information return or section 6722 for failure to furnish a correct payee statement. These sections impose penalties for failures to furnish and file timely, correctly, and completely.
2016 Tax Year Fine Amounts
Sections 6721 and 6722 provide general penalty amounts for failures to comply, and those amounts may be reduced by correcting failures within a specified amount of time. These sections provide caps on the total annual amount an employer may be fined, but no cap applies when an employer intentionally disregards the requirements of sections 6055 and 6056. For 2016 statements (reported in 2017), the penalty amounts for large businesses (those with gross receipts of more than $5 million and governmental entities) are as follows:
|Penalty Amount Per Form||Annual Cap|
|Not More Than 30 Days Late||$50||$532,000 max|
|31 Days Late through August 1||$100||$1,596,500 max|
|Not Corrected by August 1||$260||$3,193,000 max|
|In Cases of Intentional Disregard||$530||No maximum|
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