The IRS issues penalties for employers who do not comply with the Affordable Care Act (ACA) Employer Mandate. For the 2020 tax year, the penalties have increased.
What are the ACA penalties?
Monetary penalties for filing late
If you file ACA forms to the IRS after the deadline, you will be charged a minimum of $50 per return. At maximum, you may be charged $550 per return filed late.
The amount increases by the number of returns not filed and the length of time it takes you to file them after the deadline.
According to ACA Times, if you file late for tax year 2020, you can expect to pay the following penalty amounts:
- $50 per return filed late if you file within 30 days of the deadline; the penalty amount will not exceed the annual maximum, $556,500
- $110 per return filed late if you file 31 or more days late, but before August 1, 2021; the penalty amount will not exceed the annual maximum, $1,669,500
- $270 per return filed late when filed after August 1, 2021; the penalty amount will not exceed the annual maximum, $3,339,000
- $550 per return if the IRS believes that you are intentionally disregarding this mandate; the penalty amount for this has no annual maximum
However, if your gross receipts for the past three years are $5 million or less, you would be charged the same penalty amounts with lower annual maximums.
Penalties for failing to comply with the ACA Employer Mandate
According to Freeman Law, there are two types of penalties for employers who disregard the ACA Employer Mandate:
A. When an applicable large employer (ALE):
- Does not offer coverage
- Offers coverage to less than 95% of its full-time employees and their dependents
- Has at least one full-time employee who receives a premium tax credit to help pay for coverage through a Marketplace Exchange
B. When an ALE offers coverage to at least 95% of its full-time employees and their dependents, but at least one full-time employee receives a premium tax credit to help pay for coverage through a Marketplace
In the instance that type B occurs, the employer either did not offer coverage to the full-time employee who received a premium tax credit, or the coverage the employer offered that employee did not provide minimum value or was unaffordable.
The IRS states that if you are penalized for failing to comply with the ACA Employer Mandate, you will “potentially owe an employer shared responsibility payment.”
How to avoid these penalties
A clear step you can take to avoid these penalties is to file accurately and on time.
But first, as an employer, you need to, as the IRS states, “offer affordable minimum essential coverage that provides minimum value to your full-time employees.”
According to ACA Times:
Organizations should also note that for the 2020 tax year, the affordability component for satisfying the 4980H(b) component of the ACA’s Employer Mandate is set to 9.78% of the Federal Poverty Level (FPL). That comes out, for an individual, based on the mainland FPL to $101.79 a month or $1,221.48 annualized. The FPL has actually decreased from 2019, which means the maximum monthly contribution an employee makes is lower and thus the employer is responsible for covering the remainder of the premium.
This means that if you have 50 or more full-time employees, you need to ensure that your employees’ individual contribution to health insurance is less than $101.79 per month.
What are the 2021 deadlines for filing ACA forms?
In addition to the penalty changes, the IRS also extended the deadline for employers to provide Forms 1095-C to full-time employees.
According to ACA Times, here are the deadlines for filing ACA forms:
- Paper file Forms 1094-C and 1095-C by February 28, 2021
- Furnish Form 1095-C to your full-time employees by March 2, 2021
- E-file Forms 1094-C and 1095-C by March 31, 2021
As you can see, how you file (paper or electronically) determines your deadline date. However, even if you e-file, you still need to furnish Form 1095-C to your full-time employees by March 2, so it’s best to file early.
Start the e-filing process today. Create your free eFile360 account.