What Employers and Coverage Providers Should Know about ACA Penalties

The article covers:

  • Reasons why the IRS may impose ACA penalties
  • The penalty amount
  • How ACAwise helps you avoid penalties

ACA Penalties- An Overview

- Updated November 08, 2024 - 8.00 AM - Admin, ACAwise

Employers and health coverage providers have a responsibility to comply with compliance under the Affordable Care Act. Failure to do so can result in hefty penalties from the IRS.

This article provides an overview of ACA penalty rates and the reasons that the IRS may impose penalties.

Table of Contents:

Reasons Employers and Coverage Providers Receive
ACA Penalties

Here are the major reasons why an employer or a coverage provider may receive ACA penalties from the IRS.

  • Failing to meet IRS reporting requirements (under Sections 6055 and 6056)
    • Failing to file ACA forms on time with IRS
    • Failing to furnish form copies on time to the recipients
    • Failing to report correct or complete information

The next two reasons only apply to employers,

  • Failing to meet the ACA Coverage Mandate (under Section 4980H (a) and (b))
    • Failing to offer minimum essential coverage for 95% of their full-time employees every month of
      the year
    • Failing to offer coverage to their employees that is deemed affordable.

Penalties for failure to Meet IRS ACA Reporting Requirements

If an employer or a coverage provider fails to file ACA Forms or furnish recipient copies on time or file with incorrect information, the IRS issues penalty letters 5699, 5005-A, and 972CG with proposed penalties under sections 6721 and 6722 to the ALEs.

Here are the Penalty Rates (as revised by the IRS under sections 6721 and 6722) for failing to comply with ACA reporting requirements,

Large Businesses with Gross Receipts greater than or equal to $5 Million

Date that returns filed/furnished Filing the correct ACA forms within 30 days after the due date Filing between 30 days after the due date and August 1 Filing on or after August 1 Intentionally neglecting to file
From 01-01-2025 thru 12-31-2025 $60 per return or statement Maximum - $664,500 $130 per return or statement Maximum - $1,993,500 $330 per return or statement Maximum - $3,987,000 $660 per return or statement - No limitation
From 01-01-2024 thru 12-31-2024 $60 per return or statement Maximum - $630,500 $120 per return or statement Maximum - $1,891,500 $310 per return or statement Maximum - $3,783,000 $630 per return or statement - No limitation
From 01-01-2023 thru 12-31-2023 $50 per return or statement Maximum - $588,500 $110 per return or statement Maximum - $1,766,000 $290 per return or statement Maximum - $3,532,500 $580 per return or statement - No limitation
From 01-01-2022 thru 12-31-2022 $50 per return or statement Maximum - $199,500 $110 per return or statement Maximum - $571,000 $280 per return or statement Maximum - $1,142,000 $570 per return or statement - No limitation
From 01-01-2021 thru 12-31-2021 $50 per return or statement Maximum - $197,500 $110 per return or statement Maximum - $565,000 $280 per return or statement Maximum - $1,130,500 $560 per return or statement - No limitation
Due 01-01-2020 thru 12-31-2020 $50 per return or statement Maximum - $194,500 $110 per return or statement Maximum - $556,500 $270 per return or statement Maximum - $1,113,000 $550 per return or statement - No limitation
Due 01-01-2019 thru 12-31-2019 $50 per return or statement Maximum - $191,000 $100 per return or statement Maximum - $545,500 $270 per return or statement Maximum - $1,091,500 $540 per return or statement - No limitation
Due 01-01-2018 thru 12-31-2018 $50 per return or statement Maximum - $187,500 $100 per return or statement Maximum - $536,000 $260 per return or statement Maximum - $1,072,500 $530 per return or statement - No limitation
Due 01-01-2017 thru 12-31-2017 $50 per return or statement Maximum - $186,000 $100 per return or statement Maximum - $532,000 $260 per return or statement Maximum - $1,064,000 $530 per return or statement - No limitation
Due 01-01-2016 thru 12-31-2016 $50 per return or statement Maximum - $185,000 $100 per return or statement Maximum - $529,500 $260 per return or statement Maximum - $1,059,500 $520 per return or statement - No limitation
Due 01-01-2011 thru 12-31-2015 $30 per return or statement Maximum - $75,000 $60 per return or statement Maximum - $200,000 $100 per return or statement Maximum - $500,000 $250 per return or statement - No limitation

Small Businesses with Gross Receipts less than or equal to $5 Million

Date that returns filed/furnished Filing the correct ACA forms within 30 days after the due date Filing between 30 days after the due date and August 1 Filing on or after August 1 Intentionally neglecting to file
From 01-01-2025 thru 12-31-2025 $60 per return or statement Maximum - $232,500 $130 per return or statement Maximum - $664,500 $330 per return or statement Maximum - $1,329,000 $660 / No max
From 01-01-2024 thru 12-31-2024 $60 per return or statement Maximum - $220,500 $120 per return or statement Maximum - $630,500 $310 per return or statement Maximum - $1,261,000 $630 / No max
From 01-01-2023 thru 12-31-2023 $50 per return or statement Maximum - $206,000 $110 per return or statement Maximum - $588,500 $290 per return or statement Maximum - $1,177,500 $580 / No max
From 01-01-2022 thru 12-31-2022 $50 per return or statement Maximum - $199,500 $110 per return or statement Maximum - $571,000 $280 per return or statement Maximum - $1,142,000 $570 / No max
From 01-01-2021 thru 12-31-2021 $50 per return or statement Maximum - $197,500 $110 per return or statement Maximum - $565,000 $280 per return or statement Maximum - $1,130,500 $560 / No max
Due 01-01-2020 thru 12-31-2020 $50 per return or statement Maximum - $194,500 $110 per return or statement Maximum - $556,500 $270 per return or statement Maximum - $1,113,000 $550 / No max
Due 01-01-2019 thru 12-31-2019 $50 per return or statement Maximum - $191,000 $100 per return or statement Maximum - $545,500 $270 per return or statement Maximum - $1,091,500 $540 / No max
Due 01-01-2018 thru 12-31-2018 $50 per return or statement Maximum - $187,500 $100 per return or statement Maximum - $536,000 $260 per return or statement Maximum - $1,072,500 $530 / No max
Due 01-01-2017 thru 12-31-2017 $50 per return or statement Maximum - $186,000 $100 per return or statement Maximum - $532,000 $260 per return or statement Maximum - $1,064,000 $530 / No max
Due 01-01-2016 thru 12-31-2016 $50 per return or statement Maximum - $185,000 $100 per return or statement Maximum - $529,500 $260 per return or statement Maximum - $1,059,500 $520 / No max
Due 01-01-2011 thru 12-31-2015 $30 per return or statement Maximum - $75,000 $60 per return or statement Maximum - $200,000 $100 per return or statement Maximum - $500,000 $250 / No max

Penalties for Noncompliance with the ACA Coverage Mandate

When Applicable Large Employers fail to meet the ACA coverage mandate, the IRS issues them a Letter 226J to notify them that they are responsible for an Employer Shared Responsibility Payment (ESRP) under
section 4980H.

Note: The penalties are levied based on the information provided by employers on their 1094-C and
1095-C forms.

Section 4980H (a)

A penalty will be levied on an employer if

  • Minimum Essential Coverage (MEC) is not offered to at least 95% of their full-time employees.
  • Any employee receives a Premium Tax Credit (PTC) through the marketplace.

The penalty rate under the Section 4980H(a) is,

  • the penalty rate is $2,750 for the tax year 2022
  • the penalty rate is $2,880 for the tax year 2023
  • the penalty rate is $2,970 for the tax year 2024

The penalty is calculated based on the total number of full-time employees minus the first 30 full-time employees. This calculation includes full-time employees who have minimum essential coverage under the employer’s plan or from other vendors.

Example:

For instance, If you are an ALE that has 55 full-time employees and any one of your full-time employees receives the premium tax credit in the tax year 2023, the IRS will penalize the employer
$72,000 ( (55-30) * 2880 ).

Section 4980H (b)

When an employer offers coverage to their employees but the offer is not affordable and doesn’t provide the Minimum Value (MV), or if the employee receives Premium Tax Credit (PTC) for the month, a penalty is levied.

Under section 4980H(b), this penalty rate is

  • $4,120 for the tax year 2022
  • $4,320 for the tax year 2023
  • $4,460 for the tax year 2024

Example:

If two employees received the premium tax credit in the year 2023, the penalty levied by the IRS is
$8640 ($4320*2).

Click here to learn more about the
ESRP penalties.

Complete your ACA Reporting with ACAwise and
Avoid Penalties!

ACAwise is an IRS-authorized, SOC 2 Certified ACA reporting provider that enables its clients to meet their ACA reporting requirements with ease and accuracy.

ACAwise is a full-service provider that offers a complete solution for filing and distributing accurate ACA forms. The team of experts at ACAwise ensures accurate information and an easy filing process by performing the following validations.

  • IRS Business Rules validation
  • IRS ACA Schema validation
  • Data integrity checks
  • TIN matching
  • USPS address validation
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Article Sources:

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