IRS INCREASES ACA EMPLOYER MANDATE PENALTIES FOR 2024

I hope this message finds you well. We would like to provide you with a comprehensive overview of upcoming changes in noncompliance penalties for 2024 and their practical implications for employers.

What Is Changing in 2024?

In the year 2024, significant adjustments are slated to occur in the realm of noncompliance penalties, impacting various aspects of compliance.

Penalty A: This penalty will see an increase from the 2023 level of $2,880 (equivalent to $240 per month) to $2,970 (approximately $247.50 per month).

Penalty B: Similarly, Penalty B will experience an uptick from its 2023 rate of $4,320 (or $360 per month) to $4,460 (roughly $371.67 per month).

It is crucial to note that these revised penalty amounts will take effect for taxable years and plan years commencing after December 31, 2023. This shift towards higher penalties serves as a compelling incentive for employers to reevaluate their group health plan offerings. The focus should be on providing comprehensive coverage to their full-time employees, ensuring affordability, and delivering minimum value benefits, all in an effort to mitigate the growing cost of noncompliance.

Penalty A: Insufficient Coverage Offerings

One pivotal component of the Affordable Care Act (ACA) is Penalty A. This penalty comes into play when employers fail to provide minimum essential coverage to at least 95% of their full-time, benefits-eligible employees.

Penalty B: The Affordability Conundrum

Penalty B takes center stage when employers fall short in offering affordable, minimum value coverage to their benefits-eligible employees.

The Affordability Threshold: 2024 and Beyond

The affordability threshold, a crucial determinant of whether employer-sponsored health coverage meets ACA standards, continues to be a point of anticipation for 2024. In 2023, it stood at 9.12%, down from the previous year’s 9.61%. This percentage plays a pivotal role in calculating how much eligible individuals can contribute from their household income to maintain coverage within affordability limits.

Navigating the IRS Penalties

For employers grappling with noncompliance under either Penalty A or Penalty B, there lies a new challenge on the horizon: increased IRS penalties. According to IRS definitions within the ACA framework, employers with a minimum of 50 full-time employees (including full-time equivalent employees) during the preceding year are categorized as Applicable Large Employers (ALEs) for the current calendar year.

To trigger either penalty, an employer must be in violation, and at least one full-time employee must have utilized the premium tax credit to secure coverage through the Marketplace. Understanding these intricacies is essential to successfully navigate the complex terrain of ACA penalties.

Common Compliance Pitfalls: Navigating ACA Challenges

When it comes to ACA compliance, even the most well-intentioned employers can find themselves ensnared in potential pitfalls. Recognizing these common mistakes is critical to avoiding penalties and ensuring a seamless journey through the complexities of the Affordable Care Act. Let’s shed light on some areas where employers frequently encounter challenges:

• Incomplete Records: Failure to maintain accurate and complete records of employee hours and healthcare offerings can lead to miscalculations in coverage requirements and, ultimately, penalties.
• Misclassifying Employees: Incorrectly classifying employees as full-time or part-time can trigger compliance issues. Employers need to understand the ACA’s criteria for full-time status and ensure that classifications align with these standards.
• Lack of Communication: Neglecting to communicate effectively with employees regarding healthcare options and requirements can result in confusion and noncompliance. Clear and timely communication is essential for keeping everyone on the same page.
• Inadequate Affordability Calculations: Accurately calculating the ACA’s affordability threshold is crucial to ensure that plans meet the affordability requirement. Failing to do so can lead to unexpected penalties.
• Ignoring Seasonal Workers: Seasonal and variable-hour employees can pose compliance challenges. Employers often overlook the fact that they may need to offer coverage to these employees under certain circumstances.
• Incomplete Reporting: ACA reporting, conducted using forms such as 1094-C and 1095-C, necessitates accuracy and timeliness. Errors or omissions in reporting can result in penalties, as the IRS uses this information to determine compliance.
• Failure to Offer Coverage to Dependents: Employers must provide affordable coverage not only to employees but also to their dependents. Neglecting this aspect can lead to penalties and employee dissatisfaction.
• Inadequate Recordkeeping: Proper recordkeeping is essential for ACA compliance. Employers must retain records related to health plan offerings, coverage, and employee information. Failure to maintain these records can hinder audits and lead to penalties.

By highlighting these common compliance pitfalls, employers can proactively address potential issues and navigate the ACA landscape more effectively. Understanding where mistakes often occur is the first step toward avoiding penalties and ensuring compliance with this ever-evolving legislation.

Should you have any questions or require further information, please do not hesitate to reach out to us.