July 11, 2018
A few months back we wrote about how the affordability threshold was increasing significantly in 2019. Seeing this significant jump in the affordability threshold I was curious to see the adjusted section 4980H(a) and (b) penalty amounts related to the employer mandate for 2019. After all, we are halfway through 2018 and employers will soon need to make final decisions about their coverage options for the 2019 calendar year. After thoroughly reviewing the IRS website and other sources, I discovered there has been virtually nothing written about the section 4980H penalty amounts for 2019. Fortunately, after reviewing the Code and figuring out the premium adjustment percentage, it was easy to determine the penalty amounts for 2019 which were released in April 2018. This article explains the Code provision and the math behind the 2019 penalty amounts.
The Code explains that the original $2,000 amount associated with the section 4980H(a) penalty and the original $3,000 amount associated with the section 4980H(b) penalty would be adjusted for calendar years beginning after 2014 (see IRC section 4980H(c)(5)). The Code tells us that the original dollar amount of each penalty is multiplied by the premium adjustment percentage which is defined in a separate section of the Affordable Care Act (see PPACA section 1302(c)(4)). Furthermore, the Code instructs that the product of those numbers is rounded down to the next lowest multiple of $10 (if the number is not a multiple of $10). The equation is quite rudimentary other than being able to track down the premium adjustment percentage.
On April 17, 2018 the Department of Health and Human Services (HHS), in conjunction with the Centers for Medicare & Medicaid Services (CMS), released the final rule for the Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2019. Among other things, this document provided the 2019 premium adjustment percentage. For 2019, the premium adjustment percentage is 25.16634051. This is up 7.7 percent from the 2018 premium adjustment percentage of 16.17303196. The 7.7 percent increase is significant compared to previous years. For example, the premium adjustment percentage only increased 2.6 percent from 2017 to 2018.
Since the premium adjustment percentage is already provided, all the numbers necessary to calculate the 2019 section 4980H penalty amounts are known. The equations with the numbers filled in are:
- $2,000 * 1.2516634051 = $2,503.33
- $3,000 * 1.2516634051 = $3,754.99
The Code’s rounding rule instructs us to round to the next lowest multiple of $10 (if the number is not a multiple of $10). Therefore, the correct numbers to use when calculating the potential section 4980H penalties for 2019 are:
- Section 4980H(a) penalty amount = $2,500
- Section 4980H(b) penalty amount = $3,750
The penalty amounts have increased significantly compared to 2018. And, as too many employers learned for the 2015 tax year, the IRS is serious about its enforcement of the section 4980H penalties. If you had to respond to the IRS because your service provider was not competent enough to check the “Yes” box in column (a) of part III of the Form 1094-C, it may be time to switch providers. If your service provider lacked the competency to make the correct binary “yes or no” selection in column (a) of part III of the Form 1094-C, it likely won’t be pretty when the IRS gets around to the enforcement of section 4980H(b) which involves a nuanced understanding of the 198 potential code combination options for lines 14, 15, and 16 of the Form 1095-C. Our proprietary software can audit all of your data to ensure the information presented to the IRS is accurate. Please contact us if we can assist you or you have any ACA related questions.
About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorneys P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.
The information contained on this site is not, nor is it intended to be, legal advice. An attorney should be consulted for advice regarding your situation. Copyright © 2018 by Accord Systems, LLC. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.