The 2023 ACA Penalties
By Trevor Sheffield
April 12, 2023
A huge part of the Affordable Care Act (ACA) is ensuring that every employer offers affordable insurance to their employers. This mainly affects companies with 50 or more employees, called applicable large employers (ALEs). Here, we’re breaking down what is required of every ALE and the consequences these employers will face if they fail to follow the guidelines set out by the ACA.
The IRS website explains ALEs “must either offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees (and their dependents), or potentially make an employer shared responsibility payment to the IRS.” Minimum essential coverage and what is affordable is defined by the IRS, so employers must take care when fulfilling this responsibility. Otherwise, the penalties are steep.
There are three penalties an employer can receive for failing to provide minimum essential coverage at an affordable rate. These penalties have been updated this year, so double check that you are aware of them and what each entails. Without checking, you may accidentally stumble your way into thousands of dollars of fines, which we doubt you want to do.
Let’s discuss each of these penalties and how you can avoid them.
You’ll incur a 4980H(a) penalty if you are not offering minimum essential coverage to at least 95% of your employees at any given time and at least one employee receives a Premium Tax Credit (PTC) by enrolling in healthcare coverage through the government ACA marketplace.
ACA marketplaces are available at both a state and federal level. This penalty encourages employers to stay on top of their healthcare offerings and make them truly affordable for every employee. While a healthcare plan might be affordable according to the IRS, it’s no guarantee an employee will actually settle for the cost they are being asked to pay through their employer.
A 4980H(b) penalty is slightly different. You’ll incur this penalty if the coverage you offer is either unaffordable or not minimum value—or both!—and if one employee received a PTC from healthcare coverage through the governmental ACA marketplace. Unlike the 4980H(a) penalty, the 4980H(b) penalty is calculated on a monthly basis, which allows the IRS to ensure employees are offered the best coverage in the most timely manner available to them. You can avoid this penalty by staying up-to-date on current healthcare insurance standards and affordability.
- Failure to file
Filing your taxes can seem like a lot of work, especially as a business owner. But failing to file is more work in the long run, especially considering the fines you’ll incur if you don’t. Each employee you hire will need to receive a 1095-C form come tax season. “For the 2023 tax year, the IRS ACA penalty for failing to file 1095-C forms is $290 per return if filed after August 1, 2023. The penalty amount increases to $580 if the employer intentionally disregards the filing responsibilities.,” the ACA Times explains.
- Failure to furnish
Last but not least is the failure to furnish policy, which is given when an employer does not provide employees with their correct 1095-C forms.
ACA penalties and policies are vital to keeping your expenses low and providing your employees with the best care possible. As you consider your own healthcare offerings for employees, ask yourself whether you are following the bare minimum to avoid fines or if you’re truly working to give your employees a good experience. And when in doubt about your status with the ACA, reach out to an expert who can help you make any changes necessary.