August 2, 2015

Penalties Associated with ACA

Dear Jon


We offer a health benefit plan now to our full-time employees and understand that the employees we currently consider seasonal may in fact be full-time.  We will offer them benefits next year.  My question is about penalties.  I know about the employer mandate penalty but I’ve heard there are penalties for failing to do the IRS employer reporting.  Can you explain these please?

Purposefully Avoiding Penalties in Petaluma




Dear Purposefully,


Employers face several potential penalties under the health care reform law.  Let’s start with a quick recap of the large employer mandate.  The Patient Protection and Affordable Care Act’s (ACA) large employer mandate was first delayed in the summer of 2013, until 2015.  Then on February 10, 2014, the Obama Administration announced another delay of the mandate for large employers with 50-99 full time employees (including full time equivalents), until 2016.

Larger employers with 100 or more full time employees (including full time equivalents) are required to comply with the mandate in 2015.  The mandate; however, has been “relaxed.”  Large employers with 100 or more full time employees and equivalents will be required to offer coverage to only 70 percent or their full-time employees and dependents.  The original requirement was 95 percent.  In 2016, the 95 percent requirement comes back into effect and employers with 50 or more full-time employees and equivalents must comply.

Despite this “relaxed” requirement these larger, large employers will be subject to penalty for failing to offer full-time employees coverage or offering coverage that does not meet the law’s requirements.


1.  Large Employer Mandate Penalty

In 2015, if a large employer fails to offer minimum essential coverage to a sufficient number of its full-time employees (70 percent), the employer can be subject to a $2,000 per year penalty for each full-time employee minus the first 80 full-time employees (this IRS discount reverts to the law’s original “minus the first 30” in 2016).  This penalty applies to all full-time employees if even just one full-time employee receives subsidized coverage from a health insurance exchange.

Furthermore, if a large employer offers coverage that does not meet the law’s requirements (fails to meet minimum value or is unaffordable) it may be penalized the lesser of:

•   $3,000 times each employee that goes to an exchange and receives subsidized coverage (because the employer’s offer is unaffordable or does not meet minimum value); or

•   $2,000 times all full-time employees (minus the first 80 full-time employees in 2015 and minus the first 30 in 2016 and beyond).

This penalty is triggered when a full time employee goes to the exchange and is offered subsidized coverage because the employer’s plan does not meet the law’s requirements as discussed above.  Please note that the penalties above are indexed for future years and will increase.


2.  ACA Health Insurance Market Reform $100/Day/Violation Self-Reporting Excise Taxes

Besides the more well-known employer mandate tax penalty there are other taxes that employers should understand.  The ACA imposes many health insurance market reforms (“Market Reforms”) that improve coverage for consumers.  If an employer sponsored group health benefit plan fails to implement these Market Reforms they are subject to a self-reporting excise tax.   The Market Reforms were part of the law enacted in 2010.  They were implemented on a rolling basis from 2010 – 2014 and most are effective now.

In fact, the excise taxes now in effect are potentially more significant than the large employer mandate penalties. The ACA imposes an excise tax of $100 per day per affected individual for certain violations.  Calculated annually, the total potential excise tax with respect to a single individual for a continuous violation of a single requirement could be $36,500—which is far greater than the annual pay or play penalty per individual.  The excise tax applies to the following Market Reforms (Note: some market reforms do not apply to grandfathered plans):

•   No lifetime or annual limits on essential health benefits

•   No preexisting condition exclusions

•   No rescissions of coverage

•   Coverage of preventive health services (not applicable to grandfathered plans)

•   Extension of dependent coverage until age 26

•   No preexisting condition exclusions

•   No discrimination against individual participants and beneficiaries based on health status

•   No discrimination in health care providers (not applicable to grandfathered plans)

•   Cost-sharing limitations on essential health benefits (not applicable to grandfathered plans)

•   No waiting periods in excess of 90 days

•   Coverage for individuals participating in approved clinical trials (not applicable to grandfathered plans)

•   Periodic disclosures required in summary of benefits and coverage

•   Health plan reporting requirements

•   No discrimination in favor of highly compensated individuals (delayed for fully-insured plans until regulations issued and not applicable to fully-insured Grandfathered plans)

•   Health plan claim and appeals protections (additional independent medical review requirements not applicable to grandfathered plans)

•   Patient protections, including the selection of primary care provider, coverage of emergency services, and access to pediatric, obstetrical and gynecological care providers (not applicable to grandfathered plans)


a.  Exceptions to the Excise Tax Rules

     There are some exceptions to the excise tax. The tax may not be applicable if an employer that is liable for the tax can demonstrate that it did not know that there was a compliance failure.  Employers are, however, required to exercise reasonable diligence to determine whether a compliance failure exists.


     Likewise, the tax may not apply if an employer can demonstrate that a compliance failure was due to reasonable cause rather than willful neglect and was corrected within 30 days after the employer knew or should have known about the failure.  Please note that “reasonable cause” and “willful neglect” are not yet explicitly defined.


b.  Minimum and Maximum Penalties

     The law sets the minimum and maximum amount of excise taxes.  The minimum excise tax for a compliance failure after notice is generally $2,500.  The minimum excise tax is increased to $15,000 if the violations are more than de minimis.  The maximum excise tax for “unintentional failures” for a single employer plan is the lesser of 10 percent of the amount paid during the preceding tax year by the employer for group health plans, or $500,000.


c.  Timing of Self Reporting

Any entity liable for the excise taxes must report this tax and file Form 8928 (Return of Excise Taxes under Chapter 43 of the Internal Revenue Code).  Generally, Form 8928 must be filed on or before the due date for the employer’s federal income tax return.  Failure to timely file this form can result in the assessment of additional penalties and interest.


3.  IRS Reporting Penalties

The Trade Preferences Extension Act of 2015 (“Trade Act”) was signed into law by President Obama on June 29, 2015 doubles the potential penalties for employers and insurers that fail to comply with the ACA’s reporting requirements that start in early 2016.


a.  ACA Coverage Reporting

Under the ACA, employers with 50 or more full-time employees and equivalents are required to file annual reports with the IRS stating whether the employer offered health benefits coverage to full-time employees and dependents during the prior year and furnish this information to full-time employees as well.  Employers with self-insured plans and insurers are also required file reports with the IRS and furnish this information to covered individuals as well.


     The reporting provides information necessary for the IRS to enforce the ACA individual and large employer mandates.  The data year for the reporting is 2015 and the reports are to be filed and furnished

     in early 2016 (WGA members may view our webinar on the reporting requirements here:


     The penalty for failing to file the required information return was increased by the Trade Act from $100 per return to $250 per return.  The annual cap on penalties was doubled by the Trade Act from $1,500,000 to $3,000,000.


     The IRS is providing short-term relief from penalties for those entities that can demonstrate good faith efforts to comply with the ACA reporting requirements; however, the penalty relief only relates to incorrect or incomplete information reported.  There is no relief for failing to timely file or furnish statements.


b.  W-2 and 1099-series Reporting

     The Trade Act also modifies the penalties associated with failing file W-2s, 1099-R, and 1099-MISC.  The basic penalty for failure to file or furnish a correct information return or payee statement will more than double from $100 to $250, and the standard annual penalty cap will double from $1.5 million to $3 million.  If the failure relates to both an information return and a payee statement, the penalties are doubled ($500 per statement and a $6 million cap).  These penalties go into effect in 2016 (applicable to returns and statements required to be filed after December 31, 2015).


If you are interested in learning more about the Affordable Care Act, download the Ag Employer’s Guide to Health Care Reform available to all WGA members through our store.  You can find it here:  For more information about this article or if you have other questions about health care reform contact our Health Care Reform team today at [email protected] or 800-333-4WGA.  Write to Dear Jon at [email protected].  For more information and resources on Health Care Reform, visit