Employers should monitor offers of coverage throughout the year to avoid tax penalties for not complying with the Affordable Care Act Employer Shared Responsibility mandate. The fines for violating ACA requirements are extremely costly.
All applicable large employers (those with 50 or more full time employees, determined by controlled group) must offer 95% of their full-time employees affordable, minimum essential health coverage or pay a tax penalty. This is called the Employer Shared Responsibility Payment (ESRP). There are two circumstances in which an employer may owe an ESRP:
- Failing to Offer Coverage to all Required Full-Time Employees. A penalty is assessed if an employer offers coverage to less than 95% of its full-time employees (and their dependents) and at least one full-time employee receives a premium tax credit to purchase coverage through a government Marketplace. The penalty is calculated separately for each calendar month based on the total number of full-time employees in the month. The penalty is equal to the total number of full-time employees employed for the month (minus up to 30) multiplied by 1/12 of $2,000 (as adjusted each year- the dollar amount used in the penalty calculation for 2023 is $2,880).
- Failing to Offer Adequate Coverage. A penalty is assessed if an employer offers coverage to at least 95% of its full-time employees (and their dependents) but at least one full-time employee receives a tax credit to purchase coverage through a government Marketplace because coverage was not offered, offered coverage was unaffordable or offered coverage did not provide minimum value. The penalty is calculated separately for each calendar month based on the number of full-time employees who receive a premium tax credit for that month. The penalty is equal to the number of full-time employees receiving a premium tax credit for the month multiplied by 1/12 of $3,000 (as adjusted each year- the dollar amount used in the penalty calculation for 2023 is $4,320).
Penalties for noncompliance with the ACA MEC requirements add up quickly. The financial impact of an ESRP penalty can be significant. Consider reviewing offers of coverage to full-time employees throughout the year and adjust as needed to avoid large financial penalties in the future.
