The IRS also recently published the 2020 tax year annual ACA penalty amounts, which increase every year. These penalties are referred to as Employer Shared Responsibility Payments, and are described as follows:
4980H(a) Penalty: For failure to offer minimum essential coverage to at least 95 percent of full-time employees in any given calendar month:
- $214.17 per month ($2,570 annualized) multiplied by the total number of full-time employees less 30. In 2021, this penalty increases to $2,700 annualized.
4980H(b) Penalty: For failure to offer affordable minimum essential coverage that provides minimum value:
- $321.67 per month ($3,860 annualized) for each full-time employee who enrolls in coverage and receives a subsidy from Covered California. In 2021, this penalty increases to $4,060 annualized.
ALEs subject to potential penalties will receive an IRS Letter 226J to inform them of their potential liability for an employer shared-responsibility payment.
ALEs who are subject to the Employer Shared Responsibility Requirements should review their policies and health benefit arrangements to confirm they do not have exposure to ACA penalties. In our August 2020 Client Update, we generally discuss the three main IRS safe harbors, which an employer may use to consider whether it offers affordable coverage. However, it’s important to note that offering flexible benefit arrangements and cash in lieu may impact the general affordability calculations. If you have questions about your particular arrangement, please reach out to an LCW attorney.
