Originally, the Affordable Care Act (ACA) had two mandates, both of which had an associated penalty. The individual mandate penalty (also known as the “shared responsibility payment”) applied to individual taxpayers who did not have ACA-compliant health insurance. The ACA individual mandate was essentially repealed when the penalty for not having ACA-compliant coverage was reduced to zero at the end of 2018.
Applicable Large Employers (ALEs), defined by the ACA as an employer with an average of at least 50 full-time employees, are subject to a potential health insurance penalty if they do not offer qualifying ACA-compliant coverage to a majority of those workers.
One of two potential employer penalties could apply:
- 4980H(a) Penalty: For calendar year 2023, a penalty of $2,880 per year (or $240 for each month) for each full-time employee minus the first 30 if the company fails to provide minimum essential coverage to at least 95% of full-time employees and dependents and any full-time employee obtains coverage through the Health Insurance Marketplace (the public exchange).
- 4980H(b) Penalty: If employer-sponsored health insurance coverage offered is unaffordable or does not provide minimum value, a larger penalty may be imposed. The 2023 calendar year penalty is $4,320 divided by 12 for each full-time employee receiving subsidized coverage through a public exchange. The “affordability” criteria are 9.12% for 2023 and 8.39% for 2024 of the employee’s W-2 Box 1 wages.
Most employers fall below the 50-employee threshold and are not subject to the ACA employer mandate.
States with an individual health insurance mandate include:
- California
- D.C. (District of Columbia)
- Massachusetts
- New Jersey
- Rhode Island
- Vermont
If you live in one of these states, you will want to research state-specific guidelines about avoiding a state penalty.