Health Care Reform Website

Penalties

Does Not Offer Minimum Essential Coverage – the “A” Penalty

If an Applicable Large Employer (ALE) does not offer minimum essential coverage to at least 95% 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 (indexed annually) 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% 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 (indexed annually) 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.

Assessed on Calendar Month Basis

While both the “A” and “B” penalties are reported and payable on a calendar year basis, they are determined on a calendar month basis. For example, if an ALE offered coverage to at least 95% of its full-time employees, and their dependents, for 11 calendar months but offered coverage to only 92% for one calendar month, the amount of the “A” penalty for that calendar year would be one twelfth of $2,000 (indexed annually) multiplied by the entire full-time workforce (excluding the first 30 full-time employees).

Amounts Indexed to Increase Annually

The amounts for both the “A” and “B” penalties are indexed to increase each calendar year after 2014.The “A” penalty increased to $2,080 for 2015, $2,160 for 2016, $2,260 for 2017 and $2,320 for 2018.The “B” penalty increased to $3,120 for 2015, $3,240 for 2016, $3,390 for 2017 and $3,480 for 2018. Adjustments for future years will be determined by the Internal Revenue Service (IRS).

Transition Relief for 2015

The penalties under the Employer Mandate were originally set to be effective January 1, 2014 but were delayed to January 1, 2015.  In addition, the IRS provided employers with transitional relief for 2015. 

  • Large Employers with 50 to 99 Full-Time Employees:If certain requirements are met, these eligible employers will not be subject to either the “A” or “B” penalties for any month in 2015, plus any months in 2016 that are part of the 2015 plan year. 
  • Large Employers with 100 or More Full-Time Employees:ALEs offering coverage to at least 70% of their full-time employees will not be subject to the “A” penalty for each month of 2015, including any months in 2016 that are part of the 2015 plan year.  This relief is applicable only to the “A” penalty.  ALEs remain subject to the “B” penalty starting on January 1, 2015.
  • Relief for Non-Calendar Year Plans:The effective date for the 70% threshold is January 1, 2015 regardless of whether the ALE offers a calendar year or non-calendar year plan.  However, ALEs with non-calendar year plans can delay the effective date until the first day of the 2015 plan year if they meet the certain requirements. 

Additional Information

Employer Shared Responsibility Transition Relief
     This Briefing describes Employer Mandate transition relief available to employers for 2015.


IRC §4980H Transition Relief for Non-Calendar Year Plans
     This Briefing discusses Employer Mandate transition relief available to employers with non-calendar year plans.


How Does IRC §4980H Transition Relief Apply to Non-Calendar Year Plans?
     This Briefing provides examples of how transition relief may delay the effective date of penalties until the first day of the 2015 plan year for non-calendar year plans.


Determining if Penalties Apply to an Employer