An Overview of IRS ACA Penalties for Employers and Coverage Providers for 2023

The ACA reporting process is one that contains many complexities. This can be very challenging for employers and other organizations that are responsible for filing ACA forms with the IRS on an annual basis. 

IRS penalties are a fear of any taxpayer, however, when it comes to ACA reporting penalties, the rates are high and can add up quickly. 

Here is an overview of the penalties that the IRS can impose for ACA reporting and the reasons for levying them. 

ACA Penalties for Late Filing or Reporting Incorrect Information

The IRS can penalize a business for failing to comply with information return filing requirements under IRC 6721 and IRC 6722.

• Under IRC 6721, the IRS can impose a penalty ranging from $50 to $290 for every return that wasn’t filed on time and each information return that doesn’t meet the filing criteria. A common example of this would be submitting forms with incorrect Taxpayer Identification Numbers (TIN). Also, for intentional disregard, the penalty amount is $580.

• Under IRC 6722, the IRS can impose an additional penalty if the employer doesn’t provide their employee or recipient with a correct copy of their ACA form. 

The IRS will mail a Penalty Notice 972CG to an employer as a final warning that they have failed to meet their reporting obligations and provide correct information. 

How are Employers Penalized for Failing to Provide Coverage

Under the Affordable Care Act (ACA), employers with 50 or more full-time and full-time equivalent employees must provide affordable health insurance coverage.

Employers who fail to provide minimum essential coverage to their eligible employees that meet the affordability and those who fail to meet ACA reporting requirements are subject to IRS penalties. 

There are two types of penalties that may apply:

• 4980H(a) Penalty: The IRS issues this penalty when an employer fails to offer Minimum Essential Coverage to at least 95% of their eligible employees as required under the Affordable Care Act (ACA). 

• The increased ACA penalty rates under section 4980H(a) for the 2023 tax year :
  • $240 per employee per month
  • $2,880 per employee (total for the year)

• 4980H(b) Penalty: The IRS issues this penalty when an employer offers an unaffordable health insurance plan to their employees, and the employee also receives a premium tax credit over the federal healthcare exchange. 

• The increased ACA penalty rates under section 4980H(b) for the 2023 tax year :
  • $360 per employee per month
  • $4,320 per employee (total for the year)

How can Employers Avoid IRS ACA Penalties?

There are three key aspects of maintaining ACA compliance with the IRS.

• Provide affordable coverage to all eligible employees
  • According to HeathCare.gov, in 2023, a job-based health plan is considered “affordable” if the employee’s share of the monthly premium of the lowest-cost plan offered by the employer is less than 9.12% of the employee’s household income.
  • The lowest cost plan available to the employees must meet the Minimum Essential Coverage requirements laid out by the IRS. 

• Follow the IRS deadlines for ACA Reporting

Employers are required to file ACA Forms annually with the IRS and the States. They must also provide copies of the Forms to their employees before the ACA deadline.

• Deadline to file Forms 1094-B/C and 1095-B/C electronically: March 31st
• Deadline to paper file Forms 1094-B/C and 1095-B/C: February 28th
• Deadline to distribute recipient copies of Form 1095-B/C: March 2nd

• Submit Accurate ACA Reporting to the IRS
  • Filing accurate Forms 1094/1095-B/C with the IRS is crucial, many businesses find that an ACA reporting vendor is a great option for easing the burden and stress of completing the process. 

ACAwise is a full-service reporting provider. The experienced team at ACAwise is able to carry out the ACA reporting needs for organizations of any size. The ACAwise solution includes data validations, the generation and e-filing of accurate Forms 1094-B/C and Form 1095-C/B with the IRS and state, complete ACA code generation, recipient copy distribution, past-year filing, and more.

With ACAwise, employers are able to easily correct and retransmit any information that is filed incorrectly. 

Learn more about the ACA Core and ACA Elite reporting options at acawise.com.