Tax Year 2023 has begun, which means penalties for failing to comply with ACA employer shared responsibility provisions have been updated. A large employer that does not offer minimum essential coverage to at least 95 percent of its full-time employees and their dependents may face a penalty.
There Are Two Types of ACA Penalties
For calendar year 2023, a yearly penalty of $2,880 (or $240 for each month) per full-time employee minus the first 30 will be imposed if the company fails to provide minimum essential coverage to at least 95 percent of its full-time employees and their dependents, and any full-time employee obtains coverage through the exchange.
The employer will face a penalty if:
- The employer-sponsored coverage is unaffordable or does not provide minimum value, and
- One or more full-time employees receive subsidized coverage through an exchange.
The penalty is $4,320 (for calendar year 2023) divided by 12 for each full-time employee who receives subsidized coverage through an exchange in a month. The affordability criteria, which is used to assess whether employer-sponsored health coverage is deemed affordable for employer shared responsibility, is 9.12% for 2023, down from 9.61% in 2022. This percentage is used to calculate affordability based on an employee’s required contribution for coverage.
How Employees Qualify for Subsidies
An employee may be eligible for subsidized coverage through an exchange If:
- The employee’s household income is no more than 400% of the federal poverty line, and
- The employee is not able to get affordable coverage through an eligible employer-sponsored plan that provides minimum value.
Tips to Help Stay Compliant
One of the easiest ways to stay compliant and avoid penalties is to continuously monitor your data. Make sure you are submitting data files on time and meeting with your client manager monthly to evaluate measurement reports and affordability reports.
ACA penalties can be avoided by being vigilant. Here are a few steps you can take to ensure you are compliant with ACA employer shared responsibility provisions:
- Create an HR policy that requires all full-time employees to be offered basic necessary coverage under an employer-sponsored plan.
- Obtain formal releases from any full-time workers who opt out of your plan’s coverage.
- Make use of the IRS’s affordability safe harbors. These safe harbors assess whether coverage is affordable by ensuring that the employee’s portion of the premium does not exceed 9.5 percent (as adjusted) of the baseline in the applicable safe harbor.
- Adopt a standard HR policy that ensures all new employees are offered coverage that begins within 90 days after their employment commences.
- Transfer your files to a comprehensive partner like Benefitfocus on a consistent basis so data reports can be generated monthly.
- Review your Measurement, Affordability, Code Coverage and Data Quality Error Reports with your client manager monthly.
- Meet all IRS deadlines.
What to Do if You Receive a Penalty
If you receive a Letter 226J, check out these tips to respond.
Need help with ACA reporting? The Benefitfocus® ACA Compliance Solution combines robust software and end-to-end service to take the burden of compliance off your team. Contact us to learn more.