The IRS recently issued Revenue Procedure 2023-29, which significantly decreases the affordability threshold for ACA employer mandate purposes to 8.39% for plan years beginning in 2024. The new 8.39% level marks by far the lowest affordability percentage to date.
The affordability percentages apply for plan years beginning in the listed year. A calendar plan year will therefore have the 8.39% affordability threshold for the plan year beginning January 1, 2024.
The ACA employer mandate rules apply to employers that are “Applicable Large Employers,” or “ALEs.” In general, an employer is an ALE if it (along with any members in its controlled group) employed an average of at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year.
There are two potential ACA employer mandate penalties that can impact ALEs:
a) IRC §4980H(a)—The “A Penalty”
The first is the §4980H(a) penalty—frequently referred to as the “A Penalty” or the “Sledge Hammer Penalty.” This penalty applies where the ALE fails to offer minimum essential coverage to at least 95% of its full-time employees in any given calendar month.
The 2024 A Penalty is $2,970 annualized multiplied by all full-time employees (reduced by the first 30). It is triggered by at least one full-time employee who was not offered minimum essential coverage enrolling in subsidized coverage on the Exchange.
The “A Penalty” liability is focused on whether the employer offered a major medical plan to a sufficient percentage of full-time employees—not whether that offer was affordable (or provided minimum value).
b) IRC §4980H(b)—The “B Penalty”
The second is the §4980H(b) penalty—frequently referred to as the “B Penalty or the “Tack Hammer Penalty.” This penalty applies where the ALE is not subject to the A Penalty (i.e., the ALE offers coverage to at least 95% of full-time employees).
The B Penalty applies for each full-time employee who was:
Only those full-time employees who enroll in subsidized coverage on the Exchange will trigger the B Penalty. Unlike the A Penalty, the B Penalty is not multiplied by all full-time employees.
In other words, an ALE who offers minimum essential coverage to a full-time employee will be subject to the B Penalty if:
The 2024 B Penalty is $4,460 annualized per full-time employee receiving subsidized coverage on the Exchange.