IRS Increases ACA Employer Mandate Penalties for 2024

In the world of employer compliance with the Affordable Care Act (ACA), 2024 brings significant changes as the IRS increases penalties for noncompliance.

Let’s dive into these updates and their practical implications for employers.

What is Changing in 2024?

In 2024, we can expect to see some noteworthy changes in the realm of noncompliance penalties. These penalties are set to undergo an increase, affecting various aspects of compliance.

Penalty A, for instance, will see its figures rise from $2,880 (equivalent to $240 per month) as of 2023, to a slightly higher $2,970 (approximately $247.50 per month).

Similarly, Penalty B will experience an uptick from its 2023 levels of $4,320 (or $360 per month) to the new rate of $4,460 (roughly $371.67 per month).

It’s important to note that these adjusted penalty amounts will come into play for taxable years and plan years commencing after the curtain falls on December 31, 2023. This shift toward higher penalties should act as a potent motivator for employers to reevaluate their group health plan offerings, with a focus on providing comprehensive coverage to their full-time employees. The emphasis is on ensuring affordability and the delivery of minimum value benefits, all in an effort to steer clear of the growing cost of noncompliance.

Penalty A: Insufficient Coverage Offerings

One of the critical components of the Affordable Care Act (ACA) revolves around Penalty A. This penalty comes into play when employers fail to provide minimum essential coverage to 95% of their full-time, benefits-eligible employees.

Penalty B: The Affordability Conundrum

Penalty B takes center stage when employers fall short in offering affordable, minimum value coverage to their benefits-eligible employees.

The Affordability Threshold: 2024 and Beyond

The affordability threshold, a key determinant of whether employer-sponsored health coverage meets ACA standards, remains a topic of anticipation for 2024. In 2023, it stood at 9.12%, down from the previous year’s 9.61%. This percentage plays a pivotal role in calculating how much eligible individuals can contribute from their household income to keep coverage within the bounds of affordability.

Navigating the IRS Penalties

For those employers who find themselves in noncompliance with either Penalty A or Penalty B, there’s a new challenge on the horizon: increased IRS penalties. According to IRS definitions under the ACA, employers with at least 50 full-time employees (including full-time equivalent employees) during the preceding year are categorized as Applicable Large Employers (ALEs) for the current calendar year. 

To trigger either penalty, an employer must be in violation, and at least one full-time employee must have utilized the premium tax credit to obtain coverage through the Marketplace. Understanding these intricacies is essential to successfully navigate the complex landscape of ACA penalties.

Common Compliance Pitfalls: Navigating ACA Challenges

When it comes to ACA compliance, even the most well-intentioned employers can find themselves entangled in a web of potential pitfalls. Understanding these common mistakes is key to avoiding penalties and ensuring a smooth journey through the intricacies of the Affordable Care Act. Let’s shed light on some of the areas where employers often stumble:

Incomplete Records: Failing to maintain accurate and complete records of employee hours and healthcare offerings can be a grave error. Incomplete or inaccurate documentation can lead to miscalculations in coverage requirements and, ultimately, penalties.

Misclassifying Employees: Incorrectly classifying employees as full-time or part-time can trigger compliance issues. Employers need to understand the ACA’s criteria for full-time status and ensure that classifications align with these standards.

Lack of Communication: Neglecting to communicate effectively with employees regarding healthcare options and requirements can result in confusion and noncompliance. Clear and timely communication is essential for keeping everyone on the same page.

Inadequate Affordability Calculations: The ACA’s affordability threshold is a critical factor. Employers must correctly calculate it to ensure their plans meet the affordability requirement. Failing to do so can lead to unexpected penalties.

Ignoring Seasonal Workers: Seasonal and variable-hour employees can be a compliance challenge. Employers often overlook the fact that they may need to offer coverage to these employees under certain circumstances.

Incomplete Reporting: ACA reporting, done using forms such as 1094-C and 1095-C, requires accuracy and timeliness. Errors or omissions in reporting can result in penalties, as the IRS uses this information to determine compliance.

Failure to Offer Coverage to Dependents: Employers must provide affordable coverage not only to employees but also to their dependents. Neglecting this aspect can lead to penalties and employee dissatisfaction.

Inadequate Recordkeeping: Proper recordkeeping is essential for ACA compliance. Employers must retain records related to health plan offerings, coverage, and employee information. Failure to maintain these records can hinder audits and lead to penalties.

By highlighting these common compliance pitfalls, employers can proactively address potential issues and navigate the ACA landscape more effectively. Understanding where mistakes often occur is the first step toward avoiding penalties and ensuring compliance with this ever-evolving legislation.

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