Affordable Care Act Pay or Play Penalties Will Increase for 2024

On March 9, 2023, the IRS released updated penalty amounts for 2024 related to the employer shared responsibility (pay or play) rules under the Affordable Care Act (ACA). For calendar year 2024, the adjusted $2,000 penalty amount is $2,970 and the adjusted $3,000 penalty amount is $4,460.

Pay or Play Penalty Calculations

Under the 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 his or her Exchange plan. The monthly penalty assessed on applicable large employers that do not offer coverage to substantially all full-time employees and their dependents is equal to the employer’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), applicable large employers 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 employer did not offer coverage to all full-time employees, or the employer’s coverage is unaffordable or does not provide minimum value. The monthly penalty assessed on an employer 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 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:

Employer Shared Responsibility Provisions
Types of Employer Payments and How They Are Calculated

If you or your business is in need of a trust insurance advisor, contact Campbell Insurance.