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How Can The Raise The Wage Act Of 2021 Affect ACA Compliance?

Accounting Support • Mar 17, 2021
The Congressional Budget Office (CBO) published a report last month outlining the budgetary effects on employment in the United States if the Raise the Wage Act of 2021 is passed.

The Congressional Budget Office (CBO) published a report last month outlining the budgetary effects on employment in the United States if the Raise the Wage Act of 2021 is passed. The Budgetary Effects of Raise the Wage Act of 2021 report describes specific changes in employment rates and the federal poverty line for:

  • Individuals
  • Household incomes

What Is Raise The Wage Act?

Raise the Wage Act was first introduced in the 2019 tax year. Raise the Wage Act proposes to increase the federal minimum wage gradually from $7.25 to $15 by 2025. If the Raise the Wage Act is enacted, the minimum wage will increase over five years before reaching the proposed amount of $15.

Initially, the bill was introduced as a part of the $1.9 trillion COVID-19 relief plan but was not included because:

  • It violated the Byrd Rule.
  • It did not qualify as a part of budget reconciliation.

If Raise the Wage Act passes, it will be interesting to see how the gradual minimum wage increase will affect Americans' healthcare decisions in the context of ACA.

What Are The Budgetary Effects Of Raise The Wage Act?

Once the federal minimum wage reaches $15 by 2025, the report predicts that 1.4 million Americans would lose their jobs. CBO also predicts that increasing the minimum wage under the Raise the Wage Act will increase the cumulative budget deficit by $54 billion between 2021 and 2031. However, the upside is that nearly one million Americans will be lifted out of poverty.

The predictions of CBO have been met with some skepticism. There are many positive aspects to the wage hike, including the fact that higher wages will increase consumer spending and bring in more taxes for federal programs like:

  • Medicare
  • Social Security

A recent TIGTA report found that nearly a third of Premium Tax Credit (PTC) recipients mistakenly receive health coverage.

Some Important Points To Consider For Employers

  • Employers need to explain changes in the employment status of their employees in their ACA filings.
  • If the employees seek healthcare from state or federal health exchange, employers should make sure they have their ACA information readily available.
  • Employers should also be aware that millions of Americans who can lose their jobs might apply for a PTC and turn to Medicaid or state or federal healthcare exchange for coverage.

Penalties For Non-Compliance With ACA

The IRS is increasing its enforcement efforts and recently began issuing Letter 226J penalty assessments to employers who failed to comply with ACA Employer Mandate for the 2018 tax year.

Under the ACA Employer Mandate, Applicable Large Employers with 50 or more full-time employees and full-time equivalent employees must provide Minimum Essential Coverage (MEC) to at least 95% of their full-time employees and their dependents. Whereby such coverage is affordable for the employee and meets Minimum Value (MV). Otherwise, be subject to Internal Revenue Code (IRC) Section 4980H penalties.

The Bottom Line

Efforts are still underway to pass the Raise the Wage Act, as Biden administration and House Democrats made it clear that no one in the U.S. would work full-time and live in poverty. Since ACA reporting for the 2020 tax year is expected to be more difficult, best practices recommend incorporating an extensive ACA compliance process.

Build and manage a better workforce with integrated HR solutions from ADP Marketplace partners like Points North.

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