Large Employers Can Anticipate Increased IRS Penalty Enforcement

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Senate Democrats have announced a deal on a reconciliation bill, the Inflation Reduction Act of 2022, that would raise $450 billion to pay for deficit reduction, clean energy, and climate investments.

One of the two main tax components of the bill is an investment of $80 billion over the next 10 years for IRS compliance activities. Enforcement-related funds, at $45.6 billion, make up more than half of the total appropriations. The Congressional Budget Office estimates the IRS will collect $203 billion from this investment.

Applicable Large Employers (ALEs) should take note.

The ACA Employer Mandate 

The Affordable Care Act (ACA) requires Applicable Large Employers to perform two primary tasks; offer ACA compliant medical coverage to full time employees and offer affordable coverage. The law requires that employers with 50 or more full-time and full-time equivalent employees offer healthcare coverage to no less than 95% of employees who work 30 or more hours per week.  

IRS Penalty Enforcement 

Armed with the additional resources provided by the Inflation Reduction Act of 2022, the IRS is expected to increase ACA penalty enforcement activities. Assessments for violating the ACA employer mandate can be massive. The penalties for failing to offer coverage is $2,700 (in 2021) multiplied by the sum total of all FT employees, less the first 30. Failing to offer affordable coverage carries a penalty of $4,060 for each employee.  

Additionally, there is no statute of limitations for penalties related to the ACA employer mandate, and relief from assessments on grounds of reasonable due diligence to comply is no longer available as of 2021.

Best Practices for ALE Employers 

When it comes down to avoiding costly penalties for failure to comply with the ACA employer mandate, it really comes down to implementing core human resources procedures with accuracy. These include: 

1. Correctly classifying full time, part time, and variable-hour employees, including knowing how to implement a variable-hour employee tracking system. 
2. Ensuring that all full-time employees receive a timely offer of medical coverage. 
3. Making sure that employees are offered at least one choice of coverage that costs no more than 9.5% (adjusted annually) of their monthly household income.  
4. Complying with IRS annual informational reporting requirements (Forms 1094-C and 1095-C) and ensure the forms are filed timely and accurately. 
5. And, retaining copies of everything for audit and penalty resolution purposes. 

What We Do 

In today’s world of employee benefits, staying compliant with ever evolving laws, rules and regulations is a constant challenge. Well-versed in both federal and state legislation as well as the changes brought about by the Affordable Care Act, our expert advisors have a deep knowledge of employee benefits and a detailed understanding of healthcare laws, regulations, and standards. Contact Morris & Garritano today for a complimentary compliance assessment. 

This information is general and is provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.