2020 ACA Pay or Play: Penalties Continue to Rise!

The Affordable Care Act (ACA) has been around long enough that most businesses have settled into meeting its requirements, including mandatory reporting. This is good, since in 2020, the penalties for not complying with the ACA are going to increase. Take the time to review your plan and reporting and ensure you’re not making some basic mistakes that will likely result in fines.
Affordable Care Act Section 4980H

The relevant section of the ACA regards the responsibility employers have to provide health insurance coverage to employees. These sections state that penalties apply to applicable large employers (i.e., employers with 50 full-time employees and full-time equivalents) who fail to offer full-time employees and dependents the chance to enroll in a health insurance policy. The policy must offer ACA-compliant coverage to “substantially all” (i.e., generally 95%) of full-time employees and dependents. If these conditions are not met, the employer is assessed a penalty. 

An applicable large employer may be assessed a Code Section 4980H(a) penalty (otherwise known as the “Sledgehammer Penalty”) or a penalty under Code Section 4980H(b); however, it cannot be assessed both the “A” and “B” penalty in the same month. For larger businesses, failing to offer a qualified health insurance to an employee can cause penalties that quickly add up.

Calculating Penalties Using the Premium Adjustment Percentage (PAP)

Sections 4980H(a) and 4980H(b) define the new penalties for 2020. Originally, the penalties were $2,000 and $3,000 respectively. The new penalties are multiplied by this original dollar amount and then rounded down to the nearest multiple of ten. While this sounds complicated, once you have an idea of your PAP, the calculation is straightforward.

The Department of Health and Human Services (HHS) is tasked with assigning the PAP for each year. For 2020, this multiplier will be 28.95211380, an increase of over three percent. You can now use the final PAP multiplier to calculate the penalties for the two sections.

  • 4980H(a) Penalty = $2,000 x 1.2895211380 = $2,579.04 rounded down to the nearest 10 = $2,570
  • 4980H(b) Penalty = $3,000 x 1.2895211380 = $3,868.56 rounded down to the nearest 10 = $3,860

The increasing penalties show that the IRS continues to conduct Letter 226J (i.e., Notice of Proposed Assessment of a Code Section 4980H(a) or (b) penalty) reviews and views enforcement of Section 4980H as important. Particularly if working with third party service providers, we strongly encourage plan sponsors to carefully review the coding to ensure accuracy of reporting on ACA tax Forms 1094 and 1095.

The benefits attorneys at Hall Benefits Law work with applicable large employers to implement both the benefits plans that best serve their employees and the necessary processes to ensure they stay in compliance as rules and calculations change each year. If your business is considering changing benefits plans or wants experienced advice on setting up new options for a growing team, reach out today by calling 678-439-6236 or visiting the Hall Benefits Law website.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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