Payroll Briefs

Penalties Under ACA Rising in 2024

May 9, 2023

The Internal Revenue Service (IRS) recently announced it will be increasing the penalties for employers who fail to comply with the Affordable Care Act (ACA) employer-shared responsibility provisions in 2024. The employer-shared responsibility provisions, also known as the employer mandate, require certain employers to provide affordable health insurance coverage to their employees or face penalties.  

Qualifying as an Applicable Large Employer (ALE) 

An employer’s size is determined in any given year by the number of employees in the previous year. Under the ACA employer mandate, employers with 50 or more full-time employees or full-time equivalents (FTEs) are required to offer affordable health insurance coverage to at least 95% of their full-time employees and their dependents. A full-time employee is someone who provides, on average, at least 30 hours of service per week. If your employee count hits that number, you are considered an ALE. The penalties for failing to offer affordable coverage, also known as employer-shared responsibility payments, are assessed monthly and can be significant. 

Adjusted for inflation, the penalty amounts per full-time employee for failures occurring in the 2024 calendar year will be: 

  • $2,970, a $90 increase from 2023, for large employers not offering health coverage 
  • $4,460, a $140 increase from 2023, for large employers offering coverage that is not affordable and/or does not provide minimum value 

The above penalties are usually triggered when at least one full-time employee receives a premium tax credit for buying individual coverage through the Health Insurance Marketplace. The IRS uses letter 226-J to inform the ALE of their potential liability for an employer-shared responsibility penalty. A response form, Form 14764 (“ESRP Response”) – is included with the letter. This allows the ALE to inform the IRS if they agree or disagree with the proposed penalty. This response is usually due within 30 days of the received letter.  

How We Can Help 

Although 2024 may seem far away, it is best to get an early start on determining if your business is an ALE. If you will be considered an ALE, you should check if the health care coverage you intend to provide to your employees meets the criteria that will exempt you from a penalty. Employers should also ensure they are accurately tracking and reporting their employee hours and FTEs to determine their status under the employer mandate. Without the proper resources, going in alone can be risky and costly to your business.  

By partnering with DM Payroll Solutions, we can help you stay in compliance by: 

  • Managing your pre-tax payroll health care coverage deductions 
  • Tracking average hours worked by employees 
  • Calculating your FTE employee headcount from month-to-month 
  • Alerting you of employee eligibility for ACA benefits 
  • Preparing 1094-C and 1095-C forms for regulatory filings and distribution to employees 

ACA compliance can be tricky, so it is important to have a partner on your side to make sure you are always in compliance. DM Payroll Solutions’ automated tools will proactively manage and simplify your ACA compliance efforts. Contact us today for more information.