Avoiding penalties under the Affordable Care Act

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Avoiding penalties under the Affordable Care Act

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The Affordable Care Act (ACA) has been around since 2010 but it is still relatively new to a lot of people, including employers. For employers, it’s really important to be ahead of the curve when it comes to labor law to avoid possibly hefty fines and penalties. So here’s a run-down of the Section 4980H ­(the “Play-or-Pay” mandate), recordkeeping requirements, and the possible penalties for violating the ACA. What is the Section 4980H–Employer ‘Play-or-Pay’ Mandate?  As added by the ACA, section 4980H of the Internal Revenue Code requires that all “large” employers (those with 50 or more employees) must provide health care coverage that meets minimum essential benefits requirements to all full-time employees and their children or pay a penalty. The coverage must provide the minimum value to plan participants and must be affordable. The “minimum value” standard is a health plan that can pay at least 60% of the total cost of medical services for a standard population. The coverage is considered “affordable” – as it relates to the premium tax credit – if the employee’s share of the annual premium for the lowest priced self-only plan is no greater than 9.56% of the annual household income. What are the requirements for large employers? All “large” employers are those with 50 or more employees. They must provide the minimum essential coverage (MEC) to at least 70% of their full-time employees (and their children). For determining coverage of the ACA, “employee” is defined either as: an employee who works 30 or more hours per week or a “full-time equivalent” employee, which is counted by dividing the total number of monthly hours worked by part-time employees by 120. “Part-time” employees are counted towards determining ACA coverage, but are not included for purposes of the “Play-or-Pay” penalties. Are there any requirements for smaller employers? Small employers, those with fewer than 50 full-time equivalent employees, are not subject to the “Play-or-Pay” mandate. In order to encourage small employers to offer medical insurance, the ACA provides tax credit to qualifying small employers. To be eligible for a credit, the employer must pay at least 50% of employee health care coverage. Additionally, to be eligible for the credit, a small employer must: have no more than 25 full-time equivalent employees and pay an average wage of less than $50,000 per year. However, the maximum credit will only be available to employers that: have 10 or fewer full-time equivalent employees and pay an average wage of less than $25,000 per year. What are the recordkeeping requirements? The ACA requires employers and/or health insurance issuers to report the IRS information about employer-sponsored health coverage. The Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) is to be used to report the required information with respect to each covered employee, and Form 1094-C is used to transmit the 1095-C return to the IRS. The IRS will use these forms to determine whether the employer owes a penalty under Section 4980-H. What are the possible penalties for violating Section 4980-H? Large employers could face two types of penalties, depending on whether or not they choose to offer health care coverage to employees. The two separate penalties are: Do not offer coverage Large employers that do not offer coverage and have at least one full-time employee receiving a premium tax credit from the government under the ACA must pay a penalty of $2,000 per full-time employee (excluding the first 30 full-time employees). and Do offer coverage Large employers that do not offer coverage, but have at least one full-time employee receiving a premium tax credit und the ACA because the employer offers coverage that does not meet the “minimum value” or is “affordable,” must pay the lesser of $3,000 per employee receiving a premium credit or $2,000 per full-time employee. Looking for more details about the Affordable Care Act? For more information about ACA provisions and future mandates, check out Employee Benefits – An Employer’s Guide as well as your state-specific handbook. We also recommend signing up for our weekly light-hearted employment newsletter, the HR Update. Click here to sign up.