The IRS has released updated penalty amounts for 2024 related to the employer shared responsibility (pay or play) rules under the Affordable Care Act (ACA). This announcement comes as many employers have had to increase their healthcare spending due to Revenue Procedure 2022-34, which reduced the ACA affordability percentage for 2023.
What is the ACA Pay or Play Penalty?
The ACA’s pay or play rules require applicable large employers (ALEs) to offer affordable, minimum-value health coverage to their full-time employees (and dependents) or pay the penalty.
Depending on the circumstances, one of two penalties may apply under the pay or play rules.
Section 4980H(a) - An ALE will be penalized if it does not offer coverage to substantially all its full-time employees and their dependents, and any one of its full-time employees receives a subsidy toward their Exchange plan. [Calculating the Penalty: The monthly penalty assessed on ALEs that do not offer coverage to substantially all full-time employees and their dependents is equal to the ALE’s number of full-time employees (minus 30) multiplied by 1/12 of $2,000 (as adjusted) for any applicable month.]
Section 4980H(b) - An ALEs can be penalized if it does offer coverage to substantially all full-time employees and dependents. This penalty would occur if at least one full-time employee obtains a subsidy through an Exchange because the ALE did not offer coverage to all full-time employees or the ALE’s coverage is unaffordable or does not provide minimum value. [Calculating the Penalty: The monthly penalty assessed on an ALE for each full-time employee who receives a subsidy is 1/12 of $3,000 (as adjusted) for any applicable month. However, the total penalty for an ALE is limited to the 4980H(a) penalty amount.]
What is the ACA Penalty Amount?
- For the 2024 calendar year, the adjusted $2,000 penalty amount is $2,970 and the adjusted $3,000 penalty amount is $4,460.
- For the 2023 calendar year, the adjusted $2,000 penalty amount is $2,880 and the adjusted $3,000 penalty amount is $4,320.
The penalty amounts apply for failures to offer affordable, minimum-value coverage during the indicated calendar year.
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This information is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. ©2023 CBIZ. All rights reserved.