IRS Updates 2022 ACA Penalties

The IRS recently updated ACA penalties related to section 4980(H), failure to file, and failure to furnish. It's crucial to understand these new guidelines to keep our organization compliant for the 2022 taxable year. Read on for some important details to help you prepare for these new changes in 2022 and prevent any compliance penalties.

What is 4980H?

Section 4980H of the Affordable Care Act (ACA) is an employer mandate penalty under the Employer Shared Responsibility provision that was enacted on April 15, 2011, approximately one year after the passage of the ACA. It was added to the ACA code to outline applicable large employer (ALE) requirements related to minimum coverage, premium tax credits, and cost-sharing reductions. 

Under section 4980H(a), employers will be subject to penalties if they fail to offer 95% of full-time employees–as well as their dependents–a chance to enroll in a minimum essential coverage (MEC) plan as part of an employer-sponsored health plan, or if any single employee enrolls in a public marketplace plan and qualifies for a premium tax credit or subsidy. 

Under section 4980H(b), employers can be penalized for not providing all employees with minimum-value and affordable coverage if any single employee enrolls in a public plan while qualifying for a tax credit or subsidy. 

Penalty Updates for Section 4980H(a)

4980H(a) penalties for the 2022 taxable year are set at $229.17 per month or $2,750 annually per employee. As previously mentioned, penalties will occur under 4980H(a) should an employer fail to offer minimum essential coverage to 95% or more of its full-time employees or if any full-time employee receives a premium tax credit. As of 2015, anytime this penalty is triggered, 30 employees will be deducted from the total number of employees when calculating the overall penalty. 

For example, if an organization that employs 300 employees offers even a single employee a premium tax credit, the organization will be charged against the entire employee count. This is because the per-employee specification applies regardless of how many employees receive the credit. Therefore, you would subtract 30 from 300 to get 270 employees and multiply that number by the annual penalty amount of $2,750 per employee to get a total penalty amount of $742,500.

Penalty Updates for Section 4980H(b)

2022 Penalties under section 4980H(b) are set at $343.33 per employee or $4,120 annually per employee. This penalty will occur if an employer fails to offer full-time employees coverage that meets the affordability and minimum value threshold. 

This penalty is assessed monthly per employee and unlike section (a), is not based on the entire number of employees, but rather the number of affected employees. For example, if an employer with fifteen full-time employees were to receive a penalty for ten employees for six months, they would be charged $20,600 by the IRS. You would multiply the monthly penalty ($343.33) by the affected employees (10) by the number of months the penalty was assessed (6). 

What Are the Penalty Updates for Failure to File?

Failure to file under the ACA refers to employers failing to file ACA information correctly by the mandated deadlines. The deadline to file all ACA reporting forms is February 28, or March 31 if e-filing. This penalty is issued via Letter 5005-A.

The 2022 penalty for failing to file by the mandated deadlines is $280 per return if returned after the late filing deadline of August 1, 2023. For example, If an organization with 200 employees fails to file before the late filing deadline, it could be charged a $56,000 penalty.

What Are the Penalties for Failure to Furnish?

Failure to furnish refers to the employer's failure to supply form 1095-C to employees as is required. The deadline to furnish forms 1095-C and 1095-B is March 2. 

The penalty for failure to furnish is $280 per return. If the oversight is blatant or intentional, the penalty will be doubled per return. 

How Can You Ensure ACA Compliance in Your Organization?

The most important step you can take to ensure that you and your organization remain compliant is to stay up to date on all IRS guidelines relating to the ACA. ACA guidelines, penalties, and deadlines can change annually and as such, staying informed is necessary. 

Form a strategy that will incorporate a plan to furnish and file all documentation correctly and promptly. If you feel that your organization may be at risk of filing late or receiving penalties, consider undergoing an ACA Penalty Risk Assessment. An assessment of this level is extensive and may take time and effort. Still, penalties issued for failure to comply with ACA guidelines could result in an expensive mistake for your organization that could have otherwise been avoided.