Very little has been written about the section 4980H penalty amounts for 2019. Fortunately, after reviewing the Code and figuring out the premium adjustment percentage, it is easy to determine the penalty amounts for 2019. 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. 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.
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. The Department of Health and Human Services (HHS) in conjunction with the Centers for Medicare and Medicaid Services (CMS) has released a document that 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.
Since the premium adjustment percentage is already provided, all of the numbers necessary to calculate the 2019 section 4980H penalty amounts are known. The equation looks like this:
- $2,000 * 1.2516634051 = $2,503.33 ($208.61 per month)
- $3,000 * 1.2516634051 = $3,754.99 ($312.92 per month)
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 IRS will likely release numbers in a Notice or in a Q&A in the weeks to come. However, the penalty amounts listed above should be used when calculating the potential penalties for violating the employer mandate in 2019.