ACA Employer Mandate
The ACA Employer Mandate went into effect on January 1, 2015. The employer mandate states that Applicable Large Employers (ALE) must offer health coverage to all full- time employees and must also report coverage details to the IRS or be subject to fines and penalties.
ALEs are employers who employed (in the preceding tax year) an average of at least 50 full-time or full-time equivalent employees on business days during the preceding calendar year. A full-time employee averages at least 30 hours of service per week. To calculate full time equivalent employees, monthly service hours for all non-full-time employees are totaled then divided by 120. When full time and full-time equivalent subtotals are added together and total more than 50 the employer is deemed an ALE.
Notably, employers must look back to the preceding tax year to determine whether they are deemed ALEs for the current year. Certain exceptions may apply if the workforce (a) exceeds 50 full-time or full-time equivalent employees for 120 days or fewer per calendar year, and (b) the employees that cause the workforce to exceed 50 are “seasonal workers.”
These penalties and audits are now being enforced. Audit rates and penalty enforcement continue to increase rapidly. Penalties are triggered when a full-time employee purchases a health plan through the marketplace and receives a premium tax credit or subsidy. Any employee who earns less than 400% of the federal poverty level is eligible for a subsidy.
If at least one full-time employee in any given month has been enrolled in a health plan through an Exchange, and for which the employee was allowed a Premium Tax Credit (PTC) or cost-sharing reduction, that ALE will be obligated to make an assessable payment. There are two separate penalties enforced penalty A and penalty B.
The ACA employer mandate’s large §4980H (a) penalty (frequently referred to as the “A Penalty” or the “Sledgehammer Penalty”) applies where the ALE fails to offer minimum essential coverage to at least 95% of its full-time employees in any given calendar month. The Section 4980H (a) penalty, issued to ALEs that fail to offer minimal essential coverage to at least 95 percent of their full-time employees and their dependents, are $2,750 per employee, or $229.17 a month, for the 2022 tax year. The assessed amount will be applied to all full-time employees, the employer can deduct 30 full-time employees from the total number of full-time employees when determining the penalty amount.
To avoid Penalty A the employer must offer minimum essential coverage (MEC) to all full-time employees. The offering of any of the Options Plus MEC plans will satisfy this mandate, Options Plus needs a minimum of 10 enrolled to maintain the offering and satisfy Penalty A.
An Applicable Large Employer must offer a health plan that meets minimum value requirements, the plan must cover at least 60% of the allowed cost of benefits provided under the plan and be deemed affordable. To be deemed affordable the employee only rate cannot exceed 9.61% of the employee’s W-2 earnings. This penalty is also triggered when an employee receives a premium tax credit on a plan through the marketplace. The penalty associated with this legislation is $4,120/ per employee per year or $343.33/month. This penalty is assessed per occurrence and a penalty on one employee does not mean a penalty for all as is the case for penalty A.
To avoid Penalty B the employer must offer at least a minimum value health plan and set the employee contribution at no more than 9.61% of the employee’s income. Waivers should be collected to validate the plan was offered and the employee contribution level. The offering and collection of valid waivers for the employees who choose not to participate will satisfy the mandate. As an alternative approach to administering the contributions and collecting complete and valid waiver information the enrollment in a group sponsored MEC plan where the employee receives a 1095 will also satisfy both penalties. The “MEC for all” solution for penalty B was added in Dec 2019 through the federal register.
1560 hours in a year is considered fulltime
30 hours x 52 weeks
KBenefits Insurance Services
Individual Health Insurance
Medicare Plan Options
Christopher S. Kudryk
KBenefits specializes in health, dental, vision, life and medicare insurance for employers and individuals in NJ & NY.
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