The 2024 ACA pay or play penalty will increase: What to know

The IRS has updated penalty amounts for 2024 related to the employer shared responsibility (pay or play) rules under the Affordable Care Act. For calendar year 2024, the adjusted ACA pay or play penalty amounts increased as follows:

$2,000 penalty amount is now $2,970; and
$3,000 penalty amount is now $4,460.

Pay or play penalty calculations

Under ACA pay or play rules, an applicable large employer is only liable for a penalty if at least one full-time employee receives a subsidy for exchange coverage. Employees who are offered affordable, minimum value coverage are generally not eligible for these exchange subsidies.

Depending on the circumstances, one of two penalties may apply under the pay or play rules: the 4980H(a) penalty or the 4980H(b) penalty.

Under Section 4980H(a), an applicable large employer will be subject to a penalty if it does not offer coverage to “substantially all” (generally, at least 95%) of its full-time employees (and dependents) and any one of its full-time employees receives a subsidy toward their exchange plan. The monthly penalty assessed on ALEs that do not offer coverage to substantially all full-time employees and their dependents is equal to the ALE’s number of full-time employees (minus 30) multiplied by 1/12 of $2,000 (as adjusted) for any applicable month.
Under Section 4980H(b), ALEs that offer coverage to substantially all full-time employees (and dependents) may still be subject to a penalty if at least one full-time employee obtains a subsidy through an exchange because the ALE did not offer coverage to all full-time employees, or the ALE’s coverage is unaffordable or does not provide minimum value. The monthly penalty assessed on an ALE for each full-time employee who receives a subsidy is 1/12 of $3,000 (as adjusted) for any applicable month. However, the total penalty for an ALE is limited to the 4980H(a) penalty amount.

IRS pay or play penalty resources

The IRS provides a variety of resources on the pay or play provisions, which provide more information on calculating the penalty. Employers can use the following two IRS webpages for more details:

Important dates and next steps

Aug. 16, 2022: The IRS released updated pay or play penalty amounts for 2023.
March 9, 2023: The IRS released updated pay or play penalty amounts for 2024.
2024 calendar year: The 2024 penalty amounts apply for failures to offer affordable, minimum value coverage during the 2024 calendar year.

If you have questions about how the pay or play rules apply, contact us today to speak with our team of experts.

This Legal Update is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. ©2023 Zywave, Inc. All rights reserved.

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