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Under the Affordable Care Act (ACA), certain employers, known as Applicable Large Employers (ALEs), are subject to employer shared responsibility provisions, often referred to as the "employer mandate" or "pay or play" provisions. These provisions require ALEs to either offer affordable minimum essential coverage that provides minimum value to their full-time employees (and their dependents) or potentially make an employer shared responsibility payment to the IRS.
Who is an ALE?
An ALE is defined as an employer that had an average of at least 50 full-time employees, including full-time equivalents, during the previous calendar year. This means that whether an employer is considered an ALE for a particular year depends on the size of its workforce in the preceding year. All types of employers, including tax-exempt organizations and government entities, can be ALEs.
Employer Responsibilities
ALEs are required to report information regarding the health coverage they offer to both the IRS and their employees. Employers that sponsor self-insured health plans have additional reporting obligations, regardless of their ALE status.
Employer Shared Responsibility Payments
ALEs face two types of potential payments:
- First Payment: If an ALE does not offer minimum essential coverage to at least 95% of its full-time employees (and their dependents), and at least one employee receives a premium tax credit for Marketplace coverage, the ALE will owe a payment of $2,000 per full-time employee (minus the first 30 employees).
- Second Payment: If an ALE offers coverage that is not affordable, does not provide minimum value, or does not cover at least 95% of full-time employees, and one or more employees receive a premium tax credit, the ALE will owe $3,000 per affected employee.
These payments are calculated monthly and adjusted annually for inflation. It’s important for ALEs to carefully evaluate their health coverage offerings to avoid these potential penalties and ensure compliance with ACA requirements.
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