ACA’s Employer Mandate: IRS Announces Higher Penalties For Noncompliance

The IRS has announced the 2024 employer mandate penalties under the Affordable Care Act for employers with 50 or more full-time equivalent employees.

Under the ACA, employers may be subject to an employer mandate penalty for (1) failing to offer minimum essential coverage to 95% of full-time employees (A Penalty) or (2) offering coverage that is not affordable (B Penalty).

The A Penalty for failing to offer minimum essential coverage to 95% of full-time employees and their dependents will be $2,970 per employee, which represents a $90 increase from 2023. The B Penalty for offering coverage that is “unaffordable” or does not provide “minimum value” will increase by $140 to $4,460 per employee. These new rates will be effective for plan years beginning after Dec. 31, 2023.

“While employers are given a buffer for the A Penalty (an employer can fail to offer 5% and the penalty is not assessed for the first 30 employees), the penalty’s nickname, the `sledgehammer’ penalty, is well-earned, since the penalty applies to all of the employer’s full-time employees in the EIN if triggered,” said Laura Bibb, a compliance attorney for Lockton.

“Generally, the coverage provides minimum value if the plan’s share of the total allowed costs of benefits provided under the plan is less than 60% of those costs,” she said. “Coverage is considered affordable for an employee if the employee’s required contribution for self-only does not exceed a specified affordability percentage (set annually by the IRS) of the employee’s household income.

“As a reminder, since employers generally do not know an employee’s household income, the IRS allows employers to determine affordability using one of three affordability safe harbors (W-2, rate of pay and federal poverty level).”

The IRS is actively issuing 226-J letters to employers informing them that they may be liable for employer mandate penalties, Bibb said.

“Care should be taken to ensure full-time employees are properly identified and offered    coverage and that required employee contributions for self-only coverage are affordable under one of the three allowable safe harbors,” she said. “Even still, errors on Form 1095-C can result in a Letter 226-J.”


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