The ACA provides for two different Employer Shared Responsibility payments, each of which is updated by a COLA factor annually. The updated 2024 penalty amounts have recently been released.
Two Types of Penalties
Subsection “A” Penalty: The Code § 4980H(a) penalty may be levied if an Applicable Large Employer fails to offer minimum essential coverage to at least 95% of full-time employees (and their dependents) for any month. The full penalty can be triggered by just one employee receiving a premium subsidy under the Exchange. The penalty is calculated based on the total number of full-time employees of the employer (minus 30) in any month in which an employee received a subsidy.
Subsection “B” Penalty: The Code § 4980H(b) penalty may be applied if an Applicable Large Employer offers minimum essential coverage to the required number of full-time employees, however, the offered coverage is not affordable or does not provide minimum value. This penalty is applied on a 1:1 basis whereby a penalty is applied for each employee each month they receive a premium subsidy under the Exchange.
Trigger for Penalties: Either or both penalties are triggered by an employee receiving subsidized coverage under the Exchange (when they otherwise could/should have been offered employer sponsored coverage).
2024 Penalty Amounts
Subsection “A” Original Penalty of $2,000: Increased for 2024 to $2,970 ($282 per month)
Subsection “B” Original Penalty of $3,000: Increased for 2024 to $4,460 ($372 per month)
Effective Date
These updated penalties are effective for tax years and plan years beginning after December 31, 2023.
Reference
These updates were made in the IRS revenue procedure, Rev. Proc. 2023-17.
