Employer Mandate

Under Internal Revenue Code section 4980H, an Applicable Large Employer 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.

Penalties

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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 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 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 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 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 Internal Revenue Service.

 

 

Additional Information
Determining if Penalties Apply to an Employer