ACA's Employer Mandate: IRS announces higher penalties for noncompliance

The agency has increased employer mandate penalties under the Affordable Care Act for non-compliant large employers (50+ employees) that fail to offer affordable health coverage to 95% of its staff.

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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.

Related: New study looks at insurance coverage among families, finds the ACA has increased coverage

“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.”