IRS Expected to Increase Penalties for Affordable Care Act Non-Compliance for 2019 Tax Year

Document with title Financial penalty on a desk.

Applicable Large Employers (employers with 50 or more full-time or full-time eligible employees) will want to take extra precaution in ensuring that they are meeting the Internal Revenue Service’s requirements for compliance with the Affordable Care Act (ACA) for the 2019 tax year. According to attorneys who work closely with the IRS and special interest groups, the IRS will likely increase penalties for failure to comply with the ACA for the 2019 tax year. These increases will apply to both penalties for failure to meet the ACA’s requirements and also for failure to properly file the appropriate forms demonstrating proof of compliance.

The 4980H(a) Penalty, or the Employer Shared Responsibility Payment for Failure to Offer Minimum Essential Coverage to 95% of its full-time employees, is expected to increase from $2,320 annually per employee for the 2018 tax year to $2,500 annually per employee for the 2019 tax year. A pro-rated penalty applies for any month in which the Applicable Large Employer (ALE) does not offer Minimum Essential Coverage (MEC) to at least 95% of full-time employees and if one or more employees who should have been offered MEC receives a Premium Tax Credit (PTC) for purchasing health care coverage through the Health Insurance Marketplace. ALEs should note that it only takes one employee receiving a PTC for this penalty to be incurred in any given month.

The 4980H(b) Penalty, or the Employer Shared Responsibility Payment for Failure to Offer Coverage That Meets Affordability and Minimum Value, is expected to increase from $3,480 per employee for the 2018 tax year to $3,750 per employee for the 2019 tax year. ALEs will incur this penalty if they do not provide their full-time employees with an offer of health care coverage that is both affordable and provides Minimum Value. It should be noted that ALEs can incur either the 4980H(a) penalty or the 4980H(b) penalty in any given month, but not both. If the 4980(b) penalty is greater than the amount of the 4980(a) penalty, then the ALE would only pay the 4980(a) penalty.

ALEs should make note that the penalties for failure to demonstrate proof of compliance with the ACA will also increase for the 2019 tax year. The Failure to File Penalty, IRC 6721, will increase from $260 per return for the 2018 tax year to $270 per return for the 2019 tax year. This penalty will be imposed for any applicable individual return that the ALE fails to file. The Failure to Furnish Penalty, IRC 6722, will likely increase to $270 per return for the 2019 tax year, as well. This penalty is imposed if an ALE fails to provide employees with accurate 1095-C payee statements and will be incurred on an individual basis.

Consider working with a reputable vendor, like SPS/GZ, to ensure that you are meeting the IRS’s requirements under the Affordable Care Act and filing the appropriate forms by August 1, 2020 to avoid any penalties for the 2019 tax year.