IRS increases employer mandate penalties for 2024

Applicable large employers (ALEs)—organizations that have 50 or more full-time equivalent employees (FTEs)—must meet the employer shared responsibility provisions (ESRP) of the Patient Protection and Affordable Care Act, commonly referred to as the employer mandate.

The employer mandate requires all ALEs, including government entities and nonprofit organizations, to offer at least 95% of their full-time employees health insurance coverage that’s affordable and provides both minimum essential coverage (MEC) and minimum value or be subject to potential penalties in the form of payments under the employer shared responsibility provisions.

This blog will inform you of the 2024 employer mandate penalties if you meet ALE status requirements.

Takeaways from this blog post:

• ALEs with 50 or more employees must meet the employer shared responsibility provisions by offering adequate coverage under the ACA or face costly penalties.
• The IRS has increased penalties for ALEs that fail to meet the employer mandate in 2024.
• The penalties for noncompliance—including failing to offer minimum essential coverage or affordable and minimum value health coverage—include fees for each full-time employee who receives subsidized coverage.

Is your company an ALE? Get everything you need to know in our complete guide

What is the employer mandate?

The ESRP of the Patient Protection and Affordable Care Act is commonly called “the employer mandate.” Only ALEs are subject to the special rules within the employer mandate.

The ACA employer mandate requires ALEs to offer their full-time workers and their dependents health coverage that’s affordable and meets minimum essential coverage (MEC) or pay employer mandate penalties, also called shared responsibility payments.

If you’re not an ALE, you don’t have to offer your employees health coverage or pay employer-shared responsibility penalties.

What are the employer mandate penalties for 2024?

The IRS recently increased penalties for failing to meet the ACA employer mandate in 2024. Employers are only subject to these noncompliance penalties if a full-time employee purchases subsidized coverage through the Health Insurance Marketplace or state-based exchanges using premium tax credits.

The 2024 ACA penalty amounts are as follows:

1. Section 4980H(a) penalty: ALEs must pay an annual penalty of $2,970 per full-time employee if they fail to offer MEC to 95% of their full-time employees and their dependents. This is an increase from $2,880 in 2023.
2. Section 4980H(b) penalty: ALEs must pay an annual penalty of $4,460 per full-time employee if they fail to offer affordable or minimum value coverage. This is an increase from $4,320 in 2023.
   1. In 2024, the IRS considers your health plan affordable as long as the employee contributions toward the benefit don’t exceed 8.39% of their household income.

If you’re an ALE with a penalty, the IRS will multiply the penalty by your number of full-time employees—not FTEs. Also, you can omit the first 30 full-time employees in that calculation. So, while you’re an ALE, if you have more than 50 FTEs, you’re only subject to a financial penalty if you have more than 30 full-time employees—not FTEs.

How do employers report compliance with the employer mandate?

Employers report how they’re meeting the mandate with IRS Forms 1094-C and 1095-C. The 1095-C Form now includes affordability codes that employers offering an individual coverage health reimbursement arrangement (ICHRA) use to show how they determined the allowance they provided gives employees affordable coverage.

States with an individual mandate, like California, New Jersey, Rhode Island, Vermont, and the District of Columbia, can complete Forms 1094-C and 1095-C to satisfy the reporting requirement.

You must provide a completed Form 1095-C to your employees by January 31 each year. You’ll summarize your 1095s for the IRS on Form 1094-C, which is due by March 31 if filing electronically (April 1 for 2024). Failing to submit Form 1094 or 1095 can also result in steep penalties.

Conclusion

The health insurance industry is ever-changing. Therefore, employers must stay current about the latest ESRP compliance requirements, particularly the employer mandate penalties.

As the IRS increases the penalty for employers subject to ACA requirements, ALEs need to find employer-sponsored health coverage that satisfies the mandate. If you're looking for employee benefits for 2024, PeopleKeep can help.

Schedule a call with a personalized benefits provider to see how an HRA can help your organization meet the employer mandate.

This article was originally published on November 2, 2022. It was last updated on January 12, 2024.