Smart Benefits: 2020 Pay or Play Penalties Announced

Monday, September 23, 2019

Rob Calise, GoLocalWorcester Business/Health Expert

Rob Calise

Under the Affordable Care Act, applicable large employers (ALEs) may be responsible for a shared responsibility payment if they:

Fail to offer coverage or offer coverage to less than 95% of its full-time employees and at least one full-time employee receives a premium tax credit to help pay for coverage through a marketplace; or
Offer coverage to at least 95% of its full-time employees but at least one full-time employee receives a premium tax credit to help pay for coverage through a marketplace because the employer didn’t offer coverage to them or the coverage offered was unaffordable or didn’t provide minimum value.

The employer shared responsibility penalties are adjusted for inflation every year. For the calendar year 2020, the employer shared responsibility penalty for employers that don’t offer coverage or offer it to less than 95% of its full-time employees for an entire year equals the number of full-time employees for the year in excess of 30 multiplied by $2,570; this figure is computed separately for each month if the company offers coverage some months but not others.

For companies that offer coverage to at least 95% of its full-time workers but still owes a penalty, the payment is calculated monthly and equals the number of full-time employees receiving the tax credit for that month multiplied by 1/12 of $3,860. The amount of the payment for any calendar month is capped at the number of the ALE’s full-time employees for the month (minus up to 30) multiplied by 1/12 of $2,570 to ensure the payment doesn’t exceed what the ALE would owe if it didn’t offer coverage.

Employers will receive a Letter 226J if the IRS determines that, for at least one month, one or more full-time employees was enrolled in a qualified health plan for which a premium tax credit was allowed and the employer didn’t qualify for an affordability safe harbor or other relief for the employee.

The IRS offers additional guidance on the employer shared responsibility payment in its Q&A here.

Rob Calise is the Managing Director, Employee Benefits of The Hilb Group of New England, where he helps clients control the costs of employee benefits by focusing on consumer-driven strategies and on how to best utilize the tax savings tools the government provides. Rob serves as Chairman of the Board of United Benefit Advisors, and is a board member of the Blue Cross & Blue Shield of RI Broker Advisory Board, United HealthCare of New England Broker Advisory Board and Rhode Island Business Healthcare Advisors Council. He is also a member of the National Association of Health Underwriters (NAHU), American Health Insurance Association (AHIA) and the Employers Council on Flexible Compensation (ECFC), as well as various human resource associations. Rob is a graduate of Bryant University with a BS in Finance