2024 ACA Employer Mandate Penalty Increases Announced

03/23/2023 Written by: Nathanael M. Alexander, Esq.

With the issuance of Rev. Proc. 2023-17, the Internal Revenue Service (IRS) announced the updated employer mandate penalties for the 2024 calendar year under the Affordable Care Act (ACA). The penalty amounts are adjusted annually for inflation and are relevant to applicable large employers (ALEs) with 50 or more full-time employees.

ALEs are subject to the employer shared responsibility penalty under §4980H(a) if they do not offer minimum essential coverage to at least 95% of their full-time employees and their dependent(s). This is known as the “sledgehammer” penalty. If an employer offers coverage to the requisite number of employees but that coverage is not considered affordable or does not provide minimum value then a penalty under §4980H(b) will instead be levied. This is commonly referred to as the “tack hammer” penalty.

Calculated on a monthly basis, the employer mandate penalties are the annual amounts divided by 12. For 2024, the §4980H(a) sledgehammer penalty will be $2,970 (or $247.50 per month) and the §4980H(b) tack hammer penalty will be $4,460 (or $371.67 per month). The penalties are triggered if a full-time employee receives a premium tax credit by purchasing coverage through the Exchange.

Note: The (a) penalty is triggered when an employer fails to offer group coverage to 95% of all full-time employees in a month (or more than 5 months, if the employer has fewer than 100 full-time employees), thus providing a bit of relief to smaller employers.

 Estimated §§4980H(a) and 4980H(b)
Employer Shared Responsibility Penalties for 2024*

Penalty A

Penalty B

Penalty for not offering group health coverage to enough full-time employees and their dependents*

Penalty for offering group health coverage that is not of “Minimum Value” (MV) or that is not “affordable”

Monthly penalty is calculated on a group level based on employer size (see below)

Calculated on an employee level based on who receives (or does not receive) a Premium Tax Credit

Penalty A is based on the total number of full-time employees employed that month minus the first 30.**  For 2024, the resulting number is multiplied by $247.50.  Note that even employees who were offered group health coverage are included in these calculations.

For 2023, there is a $371.67 per month penalty for each full-time employee who receives a Premium Tax Credit from the exchange AND who also was not offered coverage that was both MV and “affordable” under the employer’s chosen affordability safe harbor.

Triggered when employer fails to offer group coverage to 95% of all full-time employees in a month (or MORE than 5, if fewer than 100 full-time employees)

Penalty B is capped by the maximum potential liability payable under Penalty A (i.e., offering unaffordable coverage would never fine MORE than no coverage).

*Assumes at least one employee receives a Premium Tax Credit on a publicly-run Marketplace.

**Special pro rata rules apply for member of Aggregated ALE Groups; see Final Rules for details.

Regarding the calculation of affordability, the IRS has yet to announce the 2024 threshold amount. We will provide an update once the 2024 amounts become available. In the meantime, please note our 2023 affordability article below, which includes detailed information on the affordability calculation methodology, along with a link to the IRS FAQs.

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