Initiatives to repeal the Affordable Care Act (ACA) have been well chronicled and continue to make headlines. Despite this, the ACA remains intact, and health coverage penalties for non-compliance are still in effect. This has left many companies wondering if and how it will affect their business.
The Basics of “Pay or Play” Penalties
The only way your business can be penalized is if you are classified as an applicable large employer (ALE) with 50 or more full-time employees, which includes full-time equivalent employees in the preceding year. Smaller businesses with fewer than 50 full-time employees are not subject to health coverage penalties.
Understanding how to correctly classify someone as a full-time employee is critical. Full-time employees must either work an average of at least 30 hours per week or a total of 130 hours per month.
Who is Subject to Penalties?
There are two possible scenarios where you would be subject to penalties. According to the IRS, they are as follows:
- The ALE does not offer coverage to at least 95 percent of its full-time employees (and their dependents), and at least one full-time employee receives a premium tax credit to purchase individual coverage through the Health Insurance Marketplace.
- The ALE offers coverage to at least 95 percent of its full-time employees (and their dependents), but at least one full-time employee receives a premium tax credit to purchase individual coverage through the Health Insurance Marketplace because he or she was not offered coverage that was affordable or provided minimum value, as defined by federal regulations.
If you want further clarification on determining ALE status, consult this resource from the IRS.
Under scenario one, you would typically owe a penalty of $2,260 for each full-time employee minus the first 30 employees. Under scenario two, you would typically owe $3,390 for each full-time employee who receives a premium tax credit on the exchange. These numbers are the adjusted $2,000 and $3,000 amounts for the 2017 calendar year.
These numbers grow every year to account for inflation and will increase in 2018 and beyond. The numbers listed here are the health coverage penalties for 2017.
Keep in mind that all ALEs are required to report this information and whether or not they offered coverage to their staff. This is done through the following documents:
- IRS Form 1094-B
- IRS Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns
- Form 1095-C, Employer-Provided Health Insurance Offer and Coverage
ACA-related rules and regulations are constantly evolving. Therefore, it’s crucial to stay on top of the relevant changes that affect your business. To learn more about employer shared responsibility provisions, check out this resource for common questions and answers.
While “pay or play” penalties won’t be a concern if you’re a small business with fewer than 50 full-time employees, it most definitely is if your company is classified as an ALE. In this case, understand the basics of health coverage penalties and stay abreast of future changes as they unfold.