Employer Shared Responsibility Recap: IRS to Enforce Rules and Penalties

The Affordable Care Act (ACA) implemented employer shared responsibility requirements for applicable large employers (ALEs), or ALE members, to offer minimum essential coverage to their full-time employees or pay a tax penalty.

To fulfill this requirement, a compliant ACA plan offering must meet minimum value and affordability criteria. A complex method of employer reporting began in 2015 to help track compliance with the law. It additionally aids in identifying employees who are ineligible recipients of premium tax subsidies.

ALEs are those employers who average 50 or more full-time and full-time equivalent employees for the prior calendar year.

An ALE member is a company that is part of a controlled group of companies, as defined under the Internal Revenue Code, whose total employees across all related entities meet the ALE definition.

Here is a quick recap of the employer shared responsibility, its associated rules, and potential penalties.

Employer Shared Responsibility

(Employer Mandate) – ALEs must offer affordable, minimum value coverage to substantially all full-time employees and their dependents.

• Affordability – an offer is affordable if the employee’s contribution — toward the employee only rate — does not exceed a certain percent of their compensation. Employers may use one of the three allowable safe harbor compensation methods to determine affordability, e.g. W-2, rate of pay, or federal poverty line (FPL).

• Minimum Value - a plan that reimburses at least 60% of the cost of essential health benefits
• Full-time Employees – those who average 30 hours or more of service per week

Penalties

Failure to comply with the Employer Shared Responsibility provision

• Part A/Tier 1 - §4980H(a) - Failure to offer minimum essential coverage to substantially all full-time employees, i.e. 95%, AND at least one full-time employee purchases coverage from the Exchange Marketplace and receives a subsidy.
• The penalty for 2024 is $247.50 per full-time employee (less the first 30 employees) for each month they had no offer of minimum essential coverage.
• If no coverage is offered for any month in 2024, the penalty is $2,970 multiplied by the total number of full-time employees minus the first 30 employees.
• Part B/Tier 2 - §4980H(b) – Failure to offer specific full-time employees coverage that is affordable or meets minimum value AND that individual purchases coverage from the Exchange Marketplace and receives a subsidy.
• The penalty for 2024 is $371.66 per full-time employee for each month they had no offer of minimum essential coverage.
• If no coverage offered for any month in 2024 and the employee purchased Marketplace coverage and received a premium tax subsidy, the penalty is $4,460 ($371.66 x 12 months).

Employer Mandate Penalties—Calendar Year	2024	2023	2022	2021	2020
Tier One—Failure to offer coverage or to offer to 95% of employees	$2,970	$2,880	$2,750	$2,700	$2,570
Tier Two—Failure to offer coverage that is affordable and meets minimum value	$4,460	$4,320	$4,120	$4,060	$3,860

Example: C&D Company averaged 89 full-time and full-time equivalent employees for the 2024 calendar year. Of the 89, 78 are full-time employees. Although it is an ALE, ABC did not offer minimum essential coverage to their employees for any month in 2024.

Potential Penalty: $231,660.00 [$247.50/month x 12 months x 78 full-time employees]

Example: E&F E&F Company, an ALE, offered minimum value coverage to all full-time employees for 2024. While minimum value coverage was offered to all full-time employees for all 12 months, the required contributions for 14 employees exceeded the affordability limits, i.e. greater than 8.39% of their compensation. Of the 14, 9 purchased coverage from the Exchange Marketplace and received a tax subsidy for 12 months.

Potential Penalty: $40,140.00 [$4,460 x 9 employees]

For additional guidance on compliance with the Affordable Care Act, take a look at this resource: Affordable Care Act (ACA) Reporting Cheat Sheet: Reporting Made Easy.