New 2021 Employer Mandate Penalties Announced by IRS
Each year, the IRS announces updates to the employer mandate penalties when organizations fail to offer coverage or fail to meet the minimum essential coverage threshold. What changes were made for 2021, and how could this impact employers around the country?
What’s the Story?
When the employer mandate first took effect in 2014, the penalties for organizations that failed to comply with MEC regulations were subject to charges of either:
- $2,000 per employee if no coverage was offered, minus the first 30 full-time employees; or
- $3,000 per employee if covered was offered to at least 95% of employees, but the option didn’t meet MEC requirements, under § 4980H(c)(1) and (b)(1) of the ACA.
These amounts have steadily increased each year since 2014. Now, the IRS announced the adjusted penalties are $2,700 and $4,060 per employee, respectively.
Under What Circumstances Will Employers Be Required to Pay these Penalties?
An ALE will owe the first type of employer shared responsibility payment—or, in other words, penalty—if it doesn’t provide MEC to at least 95% of its full-time staff, and at least one full-time employee qualifies for the premium tax credit (PTC) for purchasing coverage through the government marketplace.
On the other hand, even if an ALE offers MEC to at least 95% of its staff, it could owe the second type of employer shared responsibility payment for every full-time employee who receives the PTC for purchasing coverage through the government marketplace.
The IRS clarifies three instances in which employees may qualify for the PTC:
- The employer-provided MEC isn’t affordable, as determined by Form W-2 wages, an employee’s rate of pay, or the federal poverty line
- The employer-provided MEC doesn’t provide minimum value, meaning that it doesn’t cover at least 60% of total allowed cost of benefits that can be expected to be incurred under the plan
- The employee is part of the 5% of a full-time workforce that isn’t offered MEC
For more information on minimum value and affordability in healthcare coverage, go to irs.gov.
What Else Should Employers Know About Health Coverage in 2021?
In addition to these changes, the IRS also announced updates to HSA, FSA, and commuter benefit limits for 2021 and made adjustments to ACA reporting documents like Form 1095-C. Now, several new codes (1L through 1S) are included to describe the affordability of coverage that an employer offers to employees, their spouses, and their dependents. This specifically applies to costs associated with individual coverage HRAs (ICHRA).
Not only that, but the COVID-19 pandemic presented a number of challenges for smaller businesses, especially when it comes to healthcare coverage. Still, projections indicate that average healthcare costs will rise modestly in the new year.
Employers with questions about health coverage should consult their brokers leading up to open enrollment and beyond. Establishing a strong partnership with benefits experts can help prepare organizations for changes in healthcare regulations.
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