What Employers Need to Know about ACA Penalties

This article further explores the following points:

  • Why Employer Receive Penalties
  • Failing to meet ACA Coverage mandate
  • Choose ACAwise for your ACA Reporting!

ACA Penalties- An Overview

- Updated October 10, 2022 - 8.00 AM - Admin, ACAwise

ACA penalties of up to a million dollars can be imposed upon employers who fail to comply with the IRS-specified
ACA requirements.

Table Of Content:

Why do employers receive penalties from
the IRS?

There are two reasons why an employer receives ACA penalties from IRS

  • Failing to meet IRS reporting requirements (under Section 6055 and 6056)
    • Failing to file the forms on time with IRS
    • Failing to furnish copies on time to
      their employees
    • Filing forms with incorrect or missing information
  • Failing to meet the ACA Coverage Mandate (under Section 4980H (a)
    and (b))
    • Failing to offer minimum essential coverage for 95% of their full-time employees every
      month of the year
    • Failing to offer affordable coverage to
      their employees

Penalties for employers that fail to meet the IRS reporting requirements

If an employer fails to file ACA Forms or furnish employee copies on time, the IRS issues penalty letters 5699, 5005-A, and 972CG with proposed penalties under sections 6721 and 6722 to
the ALEs.

Employers also face penalties for the following reasons:

  • Filing with incorrect information, such as TIN, Codes, etc
  • Filing late without providing a proper reason
  • Filing with incorrect media

What are the penalty rates?

These are the updated penalty rates for ACA non-compliance, as revised by the IRS under sections 6721 and 6722.

Large Businesses with gross receipts of more than $5 million

Date that returns filed/furnished Filing the correct ACA forms within 30 days after the due date File between 30 days after the due date and August 1 Filing on or after August 1 Intentionally neglecting to file
From 01-01-2022 thru 12-31-2022 $50 per return or statement $199,500* maximum $110*per return or statement - $571,000*maximum $280*per return or statement - $1,142,000*maximum $570*per return or statement - No limitation
From 01-01-2021 thru 12-31-2021 $50 per return or statement $197,500* maximum $110* per return or statement - $565,000*maximum $280 * per return or statement - $1,130,500*maximum $560*per return or statement - No limitation
Due 01-01-2020 thru 12-31-2020 $50 per return or statement - $194,500* maximum $110 *per return or statement - $556,500* maximum $270* per return or statement - $1,113,000* maximum $550* per return or statement - No limitation
Due 01-01-2019 thru 12-31-2019 $50 per return or statement - $191,000* maximum $100 per return or statement - $545,500* maximum $270* per return or statement - $1,091,500* maximum $540* per return or statement - No limitation
Due 01-01-2018 thru 12-31-2018 $50 per return or statement - $187,500* maximum $100 per return or statement - $536,000* maximum $260* per return or statement - $1,072,500* maximum $530* per return or statement - No limitation
Due 01-01-2017 thru 12-31-2017 $50 per return or statement - $186,000* maximum $100 per return or statement - $532,000* maximum $260* per return or statement - $1,064,000* maximum $530* per return or statement - No limitation
Due 01-01-2016 thru 12-31-2016 $50 per return or statement - $185,000* maximum $100 per return or statement - $529,500* maximum $260* per return or statement - $1,059,500* maximum $520* per return or statement - No limitation
Due 01-01-2011 thru 12-31-2015 $30 per return or statement - $75,000 maximum $60 per return or statement - $200,000 maximum $100 per return or statement - $500,000 maximum $250 per return or statement - No limitation

Penalties for failing to meet the ACA Coverage Mandate

Employers will be penalized if they fail to provide Minimum Essential Coverage to their employees. Also, the IRS issues a Letter 226J to Applicable Large Employers to indicate that they are responsible for an Employer Shared Responsibility Payment (ESRP) under
section 4980H.

The penalties are levied based on the information provided by employers on their 1094-C and 1095-C forms.

Section 4980H (a)

A penalty will be levied on an employer if,

  • Minimum Essential Coverage (MEC) is not offered to at least 95% of their full-time employees and
  • any employee receives a Premium Tax Credit (PTC) through the marketplace

Under Section 4980H(a),

  • the penalty rate is $2,750 for tax year 2022.
  • the penalty rate is $2,880 for tax year 2023.

The penalty is calculated based on the total number of full-time employees minus the first 30 full time employees. This calculation includes full-time employees who have minimum essential coverage under the employer’s plan or from
other vendors.

Example:

For instance, If you are an ALE that has 55 full-time employees and any one of your full- time employees receives the premium tax credit in the year 2022, the IRS will penalize the employer
$68,750 ((55-30)*2750).

Section 4980H (b)

When an employer offers coverage to their employees but the offer is not affordable and doesn’t provide the Minimum Value (MV) or if the employee receives Premium Tax Credit (PTC) for the month, a penalty is levied.

Under section 4980H(b), this penalty rate is $4,120 for tax year 2022 and for 2023 the penalty rate is $4,320.

Example:

If 2 employees received the premium tax credit in the year 2022, the penalty levied by the IRS is $8240 ($4120*2).

Click here to know the details about the
ESRP penalties.

Have You Received ACA penalties
from the IRS?

Receiving penalty notices or large penalties from the IRS can be stressful. Filing your ACA forms on time will save you from the risk of penalties.

ACAwise is already here to help you file on time every time.

Helping you perform a Penalty Risk Assessment for your business, our well-experienced professionals assists you in:

  • Evaluating the penalty notices
  • Responding to IRS with acceptable reasons for late filing
  • Avoiding unwanted penalties

Choose ACAwise for your ACA Reporting!

ACAwise helps you with all validations before transmitting your Forms. You can avoid filing incorrect information with our validation featuresfeatures such as,

  • TIN matching
  • USPS address validation
  • IRS Business Rules validation
  • IRS ACA XML Schema validation

ACAwise will make your reporting more accurate, secure, and error-free!

Contact Now

A Quick Guide for Employers

ACAwise has created a Free guide to help applicable large employers to know 2023 ACA Reporting Requirements
and ACA Codes better.

ACA Reporting Requirements for 2023

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ACA Code Cheatsheet for 2023

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We file your 1094/1095 Forms with the IRS and postal mail the copies to employees before the deadline.

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