Under the Employer Mandate, an Applicable Large Employer (ALE) may be subject to a penalty if it does not offer its full-time employees, and their dependents, minimum essential coverage that is affordable and provides minimum value. There are several terms used to refer to these penalties – “Pay or Play,” “Assessable Payment,” “Employer Mandate” or “Employer Shared Responsibility.” They are all the same thing and refer to two separate penalties under section 4980H – the “A” and the “B” penalties.
Does Not Offer Minimum Essential Coverage – the “A” Penalty
If an ALE does not offer minimum essential coverage to at least 95% (70% for 2015) of its full-time employees, and their dependents, and just one full-time employee receives a premium tax credit to purchase coverage through a public Exchange, the applicable penalty is $2,000 per calendar year per full-time employee multiplied by the entire full-time workforce (excluding the first 30 full-time employees).
Offers Minimum Essential Coverage – the “B” Penalty
An ALE may still be subject to a penalty even if it offers minimum essential coverage to at least 95% (70% for 2015) of its full-time workforce if the coverage either:
- Is not offered to all full-time employees;
- Is unaffordable; or
- Does not provide minimum value.
The applicable penalty is $3,000 per calendar year for each full-time employee who receives a premium tax credit to purchase coverage through a public Exchange. However, the total amount under “B” cannot exceed the maximum amount the ALE would pay under the “A” penalty for not offering minimum essential coverage.
Penalty Amounts Indexed to Increase Annually
The amounts for both the “A” and “B” penalties are indexed to increase each calendar year after 2014. The Internal Revenue Service (IRS) recently issued Notice 2015-87 confirming the “A” penalty increased to $2,080 for 2015 and $2,160 for 2016. The “B” penalty increased to $3,120 for 2015 and $3,240 for 2016. Adjustments for future years will be determined by the IRS at a later date.