Now that we're into the penalty-assessment phase of the Affordable Care Act's employer mandate, companies in industries most vulnerable to IRS penalties need to be especially alert. Consequences of noncompliance with the new health law will be real. And those penalties will rise from year to year.
Following are the ACA changes in IRS penalties for 2015:
- For calendar year 2015, the per-employee penalty for not offering any coverage to eligible employees goes from $2,000 to $2,084. You'll hear this assessment referred to as the sledgehammer penalty.
- For calendar year 2015, the per-employee penalty for offering coverage that is not deemed affordable or does not meet the ACA standard of minimum value goes from $3,000 to $3,126. This assessment is known as the tack hammer penalty.
A company will be hit with either the ACA sledgehammer or the ACA tack hammer in 2016 if, during 2015, just one of their employees who is eligible for job-based coverage seeks coverage on an exchange and gets a premium tax credit or cost-sharing subsidy for that coverage.
ACA exposure is greatest for companies where
- workers’ schedules vary
- lines between full-time and part-time workers often aren’t clear
- wages are low
- there’s frequent turnover in the workforce
Industries most exposed to the IRS assessing an ACA penalty include hospitality (restaurants, hotels, motels, casinos, resorts); nursing care (rehabilitation facilities, senior living centers); employment agencies (staffing companies, temp services); educational institutions (schools, colleges, universities); municipalities; religious organizations; retail operations; security services; trucking; food processing; construction; oil; agribusiness; and nonprofits.
If you are in one of these industries and are processing payroll in-house using Microsoft Dynamics GP – or are a GP VAR serving clients in one of these industries, it's vital to take a look now at the ACA hammers.
The sledgehammer: ACA penalty for offering no coverage
For 2015, the penalty for each month that an employer does not offer coverage to an eligible employee is $2,084, divided by 12, times the total number of full-time employees or full-time equivalents minus 80. (In 2016, this number will drop from 80 to 30.)
An eligible employee is a worker whose hours of service – not hours of work, but hours of service – total at least 130 in any month of a calendar year.
The multiplier for the ACA sledgehammer penalty, then, for 2015 would be $173.67 a month, right?
Not necessarily, when you remember that ACA penalties cannot be deducted as business expenses.
So at a 30% tax rate for a profitable company, the sledgehammer penalty would be $225.77 a month times the total number of full-time employees or full-time equivalents minus 80.
The tack hammer: ACA penalty for offering non-compliant coverage
For 2015, the penalty for each month that an employer does not offer coverage which is deemed affordable or which does not meet the ACA standard for minimum value is $3,126, divided by 12, times the number of full-time employees who sought coverage on an exchange and got a premium tax credit or a cost-sharing subsidy that month – not to exceed the following:
$2,084, divided by 12, times the total number of full-time employees or full-time equivalents minus 80
You'll note that this is the calculation for the sledgehammer penalty. (Architects of the Affordable Care Act did not want an employer who made an effort to offer coverage to be hit with a higher penalty than an employer who offered no coverage at all.)
Before taxes, the multiplier for the ACA tack hammer penalty in 2015 would be $260.50 a month. At a 30% tax rate, this penalty would be $338.65 a month times the number of full-time employees who got a tax credit or subsidy that month - so long as the product of this calculation does not exceed the product of the calculation for the employer having offered no coverage. The actual penalty would be the lesser of the two calculations.
Again, remember that ACA penalties cannot be deducted as business expenses.
Increase in affordability threshold; its safe harbor impact
Another increase to be aware of now is the change in the affordability threshold. In 2015, this percentage goes to 9.56% from the 9.5% used in 2014.
If you were using the Federal Poverty Line safe harbor, the maximum amount an employee would be expected to contribute to their self-only coverage in a month will be $92.97 instead of $92.39.
This number is significant for employers that offer minimum essential coverage (MEC) which provides minimum value, and also offer coverage for spouse and dependents.
If an employer's least-cost plan provides these benefits and the employee's contribution for their self-only coverage does not exceed $92.97 a month, this type of coverage constitutes "a qualifying offer," which reduces the reporting requirement when generating IRS Form 1095-C.
Employers offering such a plan will need to do little in changing their current payroll processes and deduction calculations in Dynamics GP in order to meet the new reporting requirements of the ACA.
The story behind these numbers
Employers need to know that as health-coverage premiums rise, they will be facing stiffer penalties.
A funding mechanism in the new health law relies on employer shared responsibility payments to offset costs of subsidizing tax credits on the exchanges and the expansion of Medicaid.
In 2009, when the new health law was being crafted on Capitol Hill, the U.S. deficit was $1.4 trillion – the largest since 1945. In order to secure enough votes for passage, framers of the Affordable Care Act built in funding provisions that would not worsen the U.S. deficit.
These increases for 2015 are a reflection of this ACA reality.
According to the IRS website, $791.9 million has been invested so far in the data-clearing infrastructure for administration of feeds from Affordable Care Act reporting. Talk that the IRS won't be ready to enforce employer penalties doesn't reconcile with this ACA reality.
ACA reporting help for GP Payroll users
If you need to enhance Microsoft Dynamics GP payroll system for comprehensive management of ACA data, know that Sypnio Software is the ISV that offers an add-on for GP Payroll that:
- Automatically tracks employee eligibility for health care coverage
- Thoroughly tests affordability of coverage offered
- Unifies reporting for companies processing payroll on multiple GP databases
- Prints Form 1095-C for employees
- Will e-file Form 1094-C for the IRS
- Works in all supported versions of GP, from V10 to GP2015
- Does not require implementation of the HR module.
To learn more about Sypnio,
By Helen Karakoudas |