ACA Penalties and Taxes and Fees--Oh My!
By Bill Olson
Chief Marketing Officer for United Benefit Advisors
Employers breathed a sign of relief when the looming Cadillac tax was delayed. But are you subject to other fees and penalties under the ACA? The ACA has introduced a multitude of new fees that employers must pay, in addition to penalties for non-compliance with employer shared responsibility rules. These dollar amounts change annually, as does the percentage amount used to calculate affordability in relation to the ACA. UBA’s new ACA Advisor, “Patient Protection and Affordable Care Act Fees, Penalties” gives a quick reference summary of the key 2015 and 2016 fees and penalties associated with the ACA.
For more detail, a recent IRS Notice (read the complete UBA analysis of this “potpourri” update) reviewed penalties and calculations related to affordability. Currently, the affordability of coverage is defined as costing no more that 9.5 percent of household income (or 9.5 percent of wages or of the federal poverty level) and it is adjusted annually. The IRS will be amending regulations to reflect these adjustment amounts and will update the percentage via IRS notice in future years. For 2015 this is set at 9.56 percent and for 2016 it is set at 9.66 percent.
Under the ACA, an Applicable Large Employer (ALE) must offer minimum essential coverage to most of its full-time employees (and dependents) or pay a $2,000 per year ($166.67 per month), indexed, penalty on all of its full-time employees, if even one employee receives a premium tax credit. An ALE must also offer minimum value, affordable coverage to its full-time employees or pay a penalty of $3,000 a year ($250 per month), indexed.
The indexed amounts for the $2,000 penalty, based on calendar years, are:
The indexed amounts for the $3,000 penalty, based on calendar years, are:
Under the ACA, any hour for which an employee is paid or entitled to payment must be counted as an hour of service. This includes:
- An hour worked
- Sick time
- Incapacity (including disability)
- Jury duty
- Military duty
- Paid leave
These rules are intended to mimic other federal regulations, but are not intended to credit hours to individuals who are terminated from employment. The IRS clarified that an hour of service does not include:
- An hour for which an employee is paid during which no duties are performed, if the payment is made to comply with workers’ compensation, unemployment, or disability insurance laws.
- An hour of service for a payment which reimburses an employee for medical or medically related expense incurred by the employee.
The IRS confirmed that there is no 501-hour limit on hours of service required to be credited to an employee on account of a continuous period of time during which the employee performs no service, if the hours would otherwise qualify as hours of service (such as for a leave of absence).
Periods during which an individual is not performing services but is receiving payments from short-term disability or long-term disability will result in hours of service, if the individual retains status as an employee, unless the payments are made from an arrangement to which the employer did not contribute directly or indirectly. Disability paid for by the employee with after-tax contributions would be an arrangement to which the employer did not contribute, and would not result in hours of service. Workers’ compensation payments under state or local government programs are not hours of service.
Even if you have mastered the affordability provisions and penalty calculation, download UBA’s quick reference guide to keep a summary of all the ACA fees and penalties handy, including the Transitional Reinsurance Fee (TRF) and the Patient-Centered Outcomes/Comparative Effectiveness Fee (PCORI)--and the myriad of due dates.