Section 4980H Large Employer Penalties – IRS Signals the Health Coverage Penalties Remain in Force

Many employers were hopeful that the Code Section 4980H penalties would be repealed now that Republicans control Congress and Trump is in the White House.  To date, that has not happened, nor has the IRS announced it will not enforce these penalties.  In fact, in two Information Letters released by IRS on July 16, 2017, the IRS indicated that the ACA Executive Order signed by President Trump when he first took office “does not change the law; the legislative provisions of the ACA are still in force until changed by the Congress, and taxpayers remain required to follow the law and pay what they may owe.”

Senate Republicans are making one last ditch effort to repeal Code Section 4980H.  However, to do so, they must get it through the Senate with 51 votes by September 30.  Unless Congress manages to repeal Code Section 4980H in the next 12 days, employers should assume the Code Section 4980H penalties remain in effect and will be enforced by IRS.

Assuming Code Section 4980H is not repealed, 2018 will be the fourth year large employers are operating under the large employer shared responsibility penalties. Large employers are subject to penalties if any full-time employee receives a premium tax credit or cost-sharing reduction and either: (a) the employer fails to offer minimum essential health coverage to 95% of its full-time employees (and their dependents); or (b) the employer offers minimum essential health coverage to 95% of its full-time employees (and their dependents), but the coverage is either not affordable or does not provide minimum value. Missing the 95% test even slightly, for example, coming in at 94%, will require the employer to pay a $2,000 annual penalty for each full-time employee (minus the first 30 full-time employees).

The rules are explained in more detail in our Health Care Reform’s Employer Shared Responsibility Penalties: A Checklist for Employers.  Below are important penalties, percentages, and premiums under Code Section 4890H:

Code Section 4980H Adjusted Penalties, Affordability Percentages, and FPL Allowable Premium

 

              2016

 

           2017

 

           2018

 

Code Section 4980H(a) penalty for failing 95% offer of coverage test

 

$2,160 annual

or

$180 monthly

 

 

$2,260 annual

or

$188.33 monthly

 

 

$2,320 annual

or

$193.33 monthly

(projected amounts, not yet confirmed by IRS)

Code Section 4980H(b) penalty for coverage failing to be minimum value and affordable $3,240 annual

or

$270 monthly

 

$3,390 annual

or

$282.50 monthly

$3,480 annual

or

$290 monthly

(projected amounts, not yet confirmed by IRS)

Code Section 4980H affordability percentage for W-2, rate of pay, and FPL safe harbors 9.66% 9.69% 9.56%
Federal poverty level (“FPL”) compensation amount posted in January for 48 Contiguous United States (FPLs are higher for Alaska and Hawaii) $11,880 $12,060 To be announced in January 2018
FPL monthly allowable premium for calendar year plans (using FPL for 48 Contiguous United States) $11,770 x 9.66%/12 =$94.74

or

$11,880 x 9.66%/12 =$95.63

$11,880 x 9.69%/12 =$95.93

or

$12,060 x 9.69%/12 =$97.38

$12,060 x 9.56%/12 =$96.07

or

$_______ x 9.56%/12 $_______

(This amount cannot be calculated until January 2018 FPLs are published)

This entry was posted in Employee Benefits.

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