ACA Penalties: Affordable Care Act Penalty Increases 2024

The Affordable Care Act (ACA), commonly known as Obamacare, transformed the American healthcare scene. It introduced key provisions like the individual mandate (requiring most Americans to have health insurance) and the employer mandate.

The employer mandate applies to businesses with 50 or more full-time equivalent employees, also known as Applicable Large Employers (ALEs). It requires ALEs to offer minimum essential coverage to their full-time workforce or face potential penalties from the Internal Revenue Service (IRS).

The IRS recently increased these ACA employer penalties for the 2024 tax year, making ACA compliance even more essential for businesses.

What Are the Key Penalty Types and the 2024 Increase?

The IRS uses two primary penalties to enforce the ACA’s employer mandate. Understanding these penalties is essential for any business entity with 50 or more full-time equivalent employees:

4980H(a) Penalty

This penalty applies if an ALE fails to offer MEC (minimum essential coverage) to no less than 95 percent of the full-time workers and their dependents. MEC is a basic level of health insurance that meets ACA standards.

2023 Penalty: $2,880 annually ($240/month) per affected full-time employee
2024 Penalty: $2,970 annually ($247.50/month) per affected full-time employee

4980H(b) Penalty

This penalty is more intricate. It can be triggered if an ALE fails to offer reasonable coverage meeting minimum value standards or if even one full-time employee receives a premium tax credit (subsidy) when purchasing health insurance through the marketplace. Affordability is determined by a percentage of the employee’s household income.

2023 Penalty: $4,320 annually ($360/month) per affected full-time employee
2024 Penalty: $4,460 annually ($371.67/month) per affected full-time employee

As you can see, the financial consequences of ACA noncompliance are significant and increase annually. For businesses, understanding what constitutes “affordable” coverage and the other ACA requirements is essential. Let’s talk about the specific requirements employers need to fulfill to stay on the right side of ACA regulations.

What Are the Key Requirements To Ensure ACA Compliance?

The ACA’s employer mandate exists for a reason: To make health insurance more accessible to Americans. For businesses with 50 or more full-time equivalent employees, understanding these core requirements is non-negotiable.

The employer mandate requires that all ALEs provide the option for MEC to no less than 95 percent of their full-time workforce. This must include their dependents, as well. If you miss this threshold, ACA penalties could apply.

The IRS determines affordability based on a percentage of an employee’s household income. For 2023, the affordability threshold stood at 9.12 percent. This means the employee’s contribution to their health insurance premiums cannot exceed that percentage of their income.

Note: The IRS hasn’t yet released the affordability threshold for 2024.

ACA compliance has clear rules for a reason. Just like ignoring traffic regulations puts yourself and others at risk, failing to meet ACA requirements comes with significant consequences. The ACA’s goal is to increase healthcare access, and the employer mandate ensures businesses fulfill their role in achieving that goal.

What Happens if You’re Not ACA Compliant?

ACA noncompliance isn’t solely a matter of fines. The truth is that it can expose your business to considerable financial risk and potential reputational harm.

If you’re an ALE and don’t offer any form of health insurance to your full-time employees, you’re essentially handing the IRS an invitation to issue the 4980H(a) penalty. Remember, you need to cover at least 95 percent of your full-time workforce and their dependents.

Even if you do offer health insurance, it needs to meet specific affordability standards. If your employee’s required contribution exceeds the IRS affordability threshold, you could face the 4980H(b) penalty. The ACA is designed to make health insurance accessible, and pricing employees out of coverage defeats that purpose.

This is where it might get particularly costly. If one or more of your full-time employees receive a premium tax credit (a subsidy) to purchase insurance on the Health Insurance Marketplace, it’s a red flag for the IRS. Subsidies are generally for those who can’t get affordable, minimum-value coverage through their employer. This scenario could also trigger that 4980H(b) penalty.

It’s not just the immediate penalty amount you need to worry about, though — ACA noncompliance can lead to:

IRS Notices: Expect to receive a Letter 226J from the IRS outlining potential penalties. The process of responding and, potentially, disputing these penalties takes significant time and resources.
Stalled Growth: The financial burden of penalties can hinder your company’s ability to invest in expansion and new hires.
Attracting Talent: In a competitive job market, offering quality health benefits is often a deciding factor for potential employees. Noncompliance can damage your reputation as an employer.

Determining your precise ACA compliance risks can be challenging, especially as regulations change and your workforce fluctuates. This is where tools like Mosey can be key for state and local compliance. Mosey helps you stay on top of your obligations, potentially flagging issues before they turn into costly penalties.

How To Face the Challenges of ACA

The ACA is well-intentioned, but compliance can be a headache for employers. It’s not just about the federal rules – state-specific regulations, changes in your employee population, and the constantly evolving ACA environment create a perfect storm for potential missteps.

Even with the best intentions, inadvertent noncompliance is a very real risk. Here’s a look at some of the main hurdles:

Employee Eligibility

Determining which of your employees qualify as full-time under the ACA isn’t always straightforward. Seasonal workers, variable-hour staff, and new hires add layers to these calculations. One misclassification could leave you open to penalties.

Affordability Isn’t Static

The affordability threshold can change from year to year. Plus, your employees’ circumstances change too — a change in pay, like a raise, that seems positive could push their health insurance costs outside that affordability range. Tracking this accurately for your entire workforce takes diligence.

The Rules Keep Changing

ACA reporting requirements, penalty amounts, and even the definitions of key terms are subject to updates. Staying informed in real-time is a full-time job in itself, and it’s easy to fall behind without dedicated resources.

Then there’s the cost of “accidental” noncompliance. Mistakes happen, but with the ACA, those mistakes can be expensive. Penalties, the hassle of responding to IRS inquiries, and potential reputational damage can take a toll on your business. Staying ahead of these challenges is an investment in your company’s future.

What Are Solutions for Ensuring Compliance?

The good news is that you don’t have to tackle ACA compliance all on your own. There are resources and tools designed to streamline the process and help you avoid those costly penalties.

Mosey offers a tech-driven approach to overall compliance, including ACA-related requirements. Here’s how Mosey can be your go-to compliance tool:

State-by-State Tracking: ACA rules are just one piece of the puzzle — state regulations add more layers. Mosey helps you stay on top of your obligations based on where your employees are located.
Reminders and Alerts: Mosey keeps an eye on your compliance calendar, sending notifications about upcoming deadlines and potential changes in your employees’ eligibility status.
Potential for Automation: Depending on the specifics of your business, Mosey may be able to automate certain state compliance tasks, saving you even more time and reducing the chance of human error.

Choose Mosey for Superior Compliance Management

The IRS isn’t playing around with those increased ACA penalties for 2024. Taking a proactive, informed approach to compliance is more important than ever.

If tackling the ACA on your own feels overwhelming, don’t hesitate to explore ACA reporting services and investigate the compliance solutions offered by Mosey. These tools can be a smart investment in your company’s peace of mind and long-term success.

Schedule a demo with Mosey to chat about your state compliance needs.

The Platform for State and Local Compliance