The ‘A’ penalties under ACA, which are expected to begin being adjudicated for the first time in the fall of 2016, are $2000 per employee per year (adjusted each year for inflation). The ‘A’ penalty is applicable to an employer who did not offer minimum essential coverage (MEC) to the appropriate percentage of their full time workforce. For the 2015 reporting year this standard was 70% of your full time workforce and was included as a part of ACA transitional relief. Beginning in 2016, this standard is raised to 95%.
This information is reported on the 1094-C which is submitted to the IRS. The information on this form allows for this portion of the ACA penalties to be automatically implemented. Below is a picture which we will walk through and the accompanying comments below the picture.
A). This is the column where you as an employer mark if you did (or did not) offer MEC to a high enough percentage of your full time workforce for the given month. Keep in mind this penalty is often talked about as an annual penalty, but in practice it is implemented on a month by month basis.
B). In this column you list the number of full time employees under the ACA rules for the month.
C). Finally, you list if you are eligible for any type of transitional relief for the given month.
How Does It Work?
First we will begin with column A which is where the employer indicates if they did offer MEC coverage. If the answer was yes for each month, then there is nothing to worry about and no penalties. If however the answer was no to the month, then we will move on to the next step.
Column B is where you indicated the number of full time employees for the month. This will be the number of employees for which you will be charged an A penalty. Almost always when it comes to discussing these penalties the annual amount is used, but in practice it is actually implemented on a month by month basis.
For example in 2016 the total annual potential A penalty is $2,160 which is $180 per month. The $180 per month is the amount used to determine your penalties. Under the general ACA rules this ‘A’ penalty does not apply to the first 30 full time employees. Therefore if an employer did not offer MEC to the appropriate percentage of employees for a given month and they had 250 employees, their monthly penalty would be $29,600 [(250-30) * $180 = $39,600].
Then finally in Column C we see if there is any possible piece of transitional relief available to help us with the penalties previously calculated. These two potential pieces of transitional relief are known as ’50 to 99′ and ‘100+’ transitional relief. If the 50 to 99 transitional relief applied to the given month, the penalty would not be due. If the 100+ transitional relief was applicable, then employee deductible for calculating the penalty would be raised from 30 to 80, thus reducing the penalty due.
From this information the IRS is in a position where they can easily look to see if MEC was offered. If not, then they would simply multiply the ‘A’ penalty by the appropriate number of full time employees and then send you a bill in the mail. To dig more deeply into how the A penalty under ACA is calculated and the importance of measuring your variable hour part time workforce, take a look at this blog called, “Trouble Tracking ACA Hours? Better Figure It Out To Avoid The $2,160 ACA Penalty . . .“