1 Quick Review
2 Frequently Asked Questions
3 Different Types of Penalties
4 Employee Benefits Adjustments

PrimePay_Changing Future of HR

Now that the year is more than halfway over, organizations across industries are starting to look at adjustments that may affect their employee benefits in the coming year.

One of those upcoming adjustments for 2024 is the out-of-pocket maximums and projected employer mandate penalties under the Affordable Care Act (ACA).

As you gear up for 2024, keep this information handy. 

The Affordable Care Act (also referred to as Obamacare) is a healthcare reform law enacted in 2010 that makes health insurance coverage affordable and available to more people, expands Medicaid, and seeks to lower the cost of healthcare by supporting innovative medical care delivery methods.

The ACA mandates certain employer-sponsored coverage responsibilities and benefits that depend on the structure and size — i.e., the number of full-time employees and full-time equivalents — of the business.

If you have 50 or more full-time employees or full-time equivalents, your business is considered an Applicable Large Employer (ALE). Two provisions of the ACA apply only to ALEs: 1) the employer shared responsibility provisions, and 2) employer information reporting for offers of minimum essential coverage. Note: non-ALEs that sponsor self-insured group medical plans are also required to report offers of minimum essential employee coverage.

The first provision means you need to offer minimum essential health care coverage to your full-time employees and their dependents or make an employer shared responsibility payment to the Internal Revenue Service (IRS) — also referred to as the “employer mandate penalty” — if you fail to provide coverage.

The second provision means you also have to send annual reports to the IRS about the health care coverage you offered if any — and send a statement to employees with the same information that you provided to the IRS.

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The ACA can be complex. From mandates and employer-shared responsibility provisions to employer-shared responsibility payments, find a list of FAQs below to ensure you’re diving into ACA compliance with ease.

What is the Affordable Care Act's Employer Mandate?

The Affordable Care Act’s (ACA) employer mandate is a key provision that business owners need to be aware of. Under this mandate, large employers are required to offer affordable and minimum essential health coverage to their full-time employees.

Again, it’s important to know that a large employer is defined as a business with 50 or more full-time equivalent employees. These employers are subject to minimum and maximum penalties if they fail to comply with the mandate. The penalties can be quite substantial and can vary depending on the number of employer’s full-time employees and the duration of the non-compliance.

To avoid penalties, there must be coverage by employers. In other words, large employers must provide affordable coverage, which means that the employee contributions of the premium cannot exceed a certain percentage of their household income. The coverage must also meet the minimum essential coverage standards, which includes providing benefits for essential health services such as physician services and hospitalization.

Compliance with the ACA employer mandate is crucial to avoid penalties from the IRS. Failure to provide affordable and minimum essential coverage can result in significant financial consequences for businesses.

It is important for business owners to understand the requirements of the employer mandate and ensure that they are providing the necessary coverage to their employees.

In summary, the Affordable Care Act’s employer mandate imposes certain requirements on large employers to offer affordable and minimum essential health coverage to their full-time employees. Failure to comply with this mandate can result in penalties from the IRS, making it essential for business owners to understand and meet these requirements.

Which Employers are Subject to the Employer Shared Responsibility Provisions?

Employers subject to the Employer Shared Responsibility Provisions of the Affordable Care Act (ACA) are referred to as Applicable Large Employers (ALEs). 

It is important to note that for the purposes of determining ALE status, both full-time and full-time equivalent employees are taken into consideration.

Full-time employees are those who work, on average, at least 30 hours per week. Full-time equivalent employees are determined by calculating the total number of hours worked by part-time employees and dividing it by 30.

If an employer meets or exceeds the threshold number of employees, they are considered an ALE and are subject to the Employer Shared Responsibility Provisions and penalty assessments.

This means they must offer affordable, minimum essential coverage to their full-time employees and their dependents or face potential penalties.

Understanding whether or not your business is considered an ALE is critical in ensuring compliance with the ACA. A vast majority of this determination is based on the size of your workforce in the preceding calendar year, so it is important for employers to carefully track and monitor their employee headcount to avoid any potential penalties.

In short, employers with at least 50 full-time employees, including full-time equivalent employees, are subject to the Employer Shared Responsibility Provisions of the ACA. It is essential for these employers to provide affordable, minimum essential coverage to their employees to avoid penalties.

Under What Circumstances Will an Employer Owe an Employer Shared Responsibility Payment?

Under the Affordable Care Act (ACA), a vast majority of employers may owe an Employer Shared Responsibility Payment (ESRP) if they are an Applicable Large Employer (ALE) and do not meet certain requirements regarding offering affordable employer-sponsored coverage, minimum substantial coverage to their full-time employees and dependents.

There are two types of ESRP: the “A” penalty, which applies when the employer fails to offer minimum essential coverage to at least 95% of their full-time employees and at least one employee receives a premium tax credit, and the “B” penalty, which applies when the employer offers coverage but it is either not affordable or does not provide minimum value and at least one employee receives a premium tax credit.

To be subject to the “A” penalty, an ALE must fail to offer coverage to at least 95% of their full-time employees (and their dependents). An employer may owe the “B” penalty if they offer coverage, but it is not affordable (the employee’s contribution for self-only coverage exceeds a certain percentage of their household income) or does not provide minimum value (the plan pays, on average, at least 60% of covered medical costs).

It is crucial for ALEs to ensure they are offering affordable, minimum essential coverage to their full-time employees and dependents to avoid potential ESRP. Compliance with these requirements can help ALEs avoid penalties and maintain employee satisfaction and well-being.

How Are the Employer Shared Responsibility Payments Calculated?

Employer-shared responsibility payments (ESRPs) are calculated based on specific criteria. These payments are penalties that employers may owe if they fail to meet certain requirements under the Affordable Care Act (ACA). There are two types of ESRPs: the “A” penalty and the “B” penalty.

The “A” penalty is applicable when an employer fails to offer minimum essential coverage to at least 95% of their full-time employees. This penalty is triggered when at least one employee receives a premium tax credit. The “B” penalty, on the other hand, is applicable when an employer offers coverage that is either unaffordable or does not provide minimum value, and at least one employee receives a premium tax credit.

The calculation for the “A” penalty is based on the number of full-time employees an employer has and whether they meet the coverage requirements. If an employer owes the “A” penalty, it is generally calculated by multiplying $2,970 (for 2024) by the total number of full-time employees minus a threshold (which could be up to 30 employees for larger employers).

The calculation for the “B” penalty is based on whether the coverage offered by the employer is affordable or provides minimum value. If an employer owes the “B” penalty, it is generally calculated by multiplying $4,460 (for 2024) by the number of full-time employees who received a premium tax credit for purchasing coverage through a marketplace.

It is important for employers to understand these criteria and calculations to ensure compliance with the ACA and avoid any potential penalties.

Under the Affordable Care Act (ACA), there are different types of penalties that can be imposed on employers who fail to meet certain requirements regarding health insurance coverage for their employees. These penalties, often referred to as the “A” and “B” penalties, are designed to ensure that employees have access to affordable and adequate health coverage.

Understanding these penalties is important for employers to avoid potential financial liabilities and comply with the ACA provisions. In the following sections, we will delve into the details of each type of penalty and how they are calculated.

What is the 2024 ACA Penalty 4980H(a) Amount?

The 2024 ACA penalty for 4980H(a) amount is $2,970. The 2024 ACA penalty for 4980H(a) is an important consideration for businesses that do not offer health insurance coverage to their full-time employees. This penalty is also known as the “hammer penalty” and is calculated based on the number of full-time employees a company has. 

To understand how the penalty is calculated, let’s consider this very simple example of John’s Pizza Parlor. In 2024, John’s Pizza Parlor has 75 full-time employees and does not offer Minimum Essential Coverage (MEC) to its employees. The penalty is triggered when at least one full-time employee obtains a Premium Tax Credit through the marketplace.

For each full-time employee, John’s Pizza Parlor would be subject to a penalty of $2,970. 

In the case of John’s Pizza Parlor, if 10 full-time employees obtain Premium Tax Credits, the penalty amount for the business would be roughly $29,700.

Note: It’s critical to consult with a professional to ensure the calculations for your unique situation are correct.

It’s important for businesses to be aware of the 2024 ACA penalty 4980H(a) amount and the potential impact on their organization. By offering health insurance coverage to their full-time employees, businesses can avoid these penalties while ensuring their employees have essential coverage.

What is the 2024 ACA Penalty 4980H(b) Amount?

The 2024 ACA penalty 4980H(b) is $4,460. The 2024 ACA penalty 4980H(b) amount is assessed on a per-violation basis when an employer offers unaffordable or non-Minimum Value coverage to their employees, and an employee receives a Premium Tax Credit (PTC) from a state or federal health exchange.

For each employee who receives a PTC, the penalty is roughly $372 per month or $4,460 annualized. This penalty is designed to incentivize employers to offer affordable and comprehensive health insurance coverage to their employees.

To illustrate how the penalty is calculated, let’s consider an example. ABC Company will have 100 full-time employees in 2024. Out of these employees, 20 obtain PTCs from a health exchange because the coverage offered by ABC Company is either unaffordable or does not meet the Minimum Value requirements.

In this case, ABC Company would be subject to a penalty of $4,460 per employee who receives a PTC. Therefore, the total penalty for ABC Company would be $89,200 ($4,460 multiplied by 20 employees).

It is important for employers to ensure that their health insurance coverage meets the affordability and Minimum Value standards set by the ACA to avoid being subject to these penalties. Employers can consult with healthcare experts or insurance providers to navigate the complex regulations and ensure compliance with the ACA requirements.

Understanding 4980H 2024 ACA Penalties

In 2024, under section 4980H of the Affordable Care Act (ACA), employers are subject to penalties for not offering affordable and comprehensive health insurance coverage to their full-time employees. There are two penalty provisions under this section: 4980H(a) and 4980H(b).

The 4980H(a) penalty is applicable to large employers with 50 or more full-time employees (including full-time equivalent employees) who do not offer minimum essential coverage to at least 95% of their full-time employees and dependents. If an employer fails to meet this requirement, they may be subject to an annual penalty.

The penalty is calculated based on the number of full-time employees (minus 30) and is multiplied by 1/12 of the applicable premium tax credit (PTC) amount. The PTC amount for 2024 is roughly $372 per month.

The 4980H(b) penalty is applicable if the employer does offer coverage to their full-time employees but it is not considered affordable or does not meet the minimum value requirements. The penalty for this provision is $4,460 per employee who receives a PTC from a health exchange.

Understanding these penalties is crucial for employers to ensure compliance with the ACA and to avoid substantial financial consequences.

ACA Out-of-Pocket Maximums for 2024

In 2024, the ACA out-of-pocket maximum for employers with sponsored group health plans can impose on enrolled employees will be $9,450 for individual coverage (up from $9,100 last year) and $18,900 for family coverage (up from $18,200 last year). These changes both represent a 3.8% increase from the previous year.

Projected Employer Mandate Penalties for 2024

Although the IRS has not yet confirmed the 2024 employer mandate penalties, the same 3.8% increase noted above is projected to apply to the penalties as well. If that’s the case, you can expect the employer mandate (a) penalty to increase to $2,970 (up from $2,880 last year) and (b) penalty to increase to $4,460 (up from $4,320 last year).

The IRS recently released the new required employer responsibility amount for 2024 to determine affordability will be 8.39%, decreasing from 9.12% in 2023. This percentage is used to assess whether an employee is offered affordable minimum essential coverage, per subsection (b) of the employer mandate. For taxable years and plan years beginning after December 31, 2023, this revenue procedure will be in place.

Get the Right Guidance

It’s critical that you apply correct yearly adjustments for employee benefits and determine any other impact these adjustments may have on your business. Partnering with an HR solutions provider can help you get the guidance you need.

Get on Track with ACA compliance

The ACA is complex, and as you look ahead to 2024, you need to ensure you have the right tools in place to help you navigate the changes outlined above and stay compliant. PrimePay’s ACA compliance solutions help you fulfill your requirements with form and filing support, employee status tracking, warnings of potential penalties, and other services.

Learn more about our suite of software solutions.

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