The IRS recently made available the 2024 ACA penalty amounts for non-compliance with the Employer Mandate. And they have increased yet again.
In Rev. Proc. 2023-17, the tax agency makes clear the monthly and annualized 4980H(a) and 4980H(b) penalty amounts for failing to comply with the ACA’s Employer Mandate in 2024. Depending on the type of violation, the IRS will issue either a 4980H(a) or 4980H(b) penalty, but more on that below.
Under the Employer Mandate portion of the ACA, organizations with 50 or more full-time and full-time equivalent employees must offer Minimum Essential Coverage (MEC) that is affordable and meets Minimum Value (MV) to at least 95% of their workforce and their dependents.
In this post, we’ll explore the various ACA non-compliance penalties, as well as the new, steeper penalty amounts for the 2024 tax year.
2024 4980H(a) Penalty
The 4980H(a) penalty for 2024 is $247.50, or $2,970 annualized, per employee. This is a modest increase from the 2023 figures, which were $240 monthly and $2,880 annualized.
Organizations that do not offer MEC to at least 95% of their full-time employees, and their dependents, for any month in 2024, and have at least one full-time employee receive a Premium Tax Credit (PTC) for purchasing coverage through a state or federal ACA marketplace, could be subject to 4980H(a) penalty.
The 4980H(a) penalty, often called the “hammer penalty” due to its pass-fail nature, applies across the entire workforce when the 95% threshold is not met.
How the IRS Calculates 4980H(a) Penalties
At a glance, the 4980H(a) penalty may seem negligible due to its small amount. However, the penalty amount applies across the entire workforce and can quickly add up.
For example, if an organization in 2024 has 300 full-time employees, and one of their employees receives a PTC for 12 months, the penalty would be $801,900.
Here’s the formula: $2,970 x (300-30) = $801,900.
The 4980H(a) penalty applies across every full-time employee and affects all 300 full-time employees, minus the 30-employee exemption. This occurs even if only one employee receives a PTC.
2024 4980H(b) Penalty
For the 2024 tax year, the 4980H(b) penalty is $372 a month, or $4,460 per year, per employee. This is an increase from $4,320 in 2023.
Unlike the 4980H(a), the IRS issues 4980H(b) penalties on a per-violation basis. In other words, if an employee has inadequate coverage and seeks assistance from a state or federal marketplace, a penalty may be assessed.
The IRS issues a 4980H(b) penalty when an employer offers its full-time employees coverage that is either unaffordable, does not meet MV, or both. Like the 4980H(a) penalty, the organization must also have at least one employee obtain a PTC from a state or federal health exchange, as this is the trigger for the IRS assessing ACA penalties.
How the IRS Calculates 4980H(b) Penalties
While the 4980H(b) penalty may have a higher potential, it is applied less frequently since it does not follow a pass/fail situation like the 4980H(a). For example, an employer with 10 full-time employees who each received a PTC for six months would incur a penalty of $22,320.
Here’s the formula: ($372 x 6) x 10 = $22,320. The 4980H(b) penalty would only apply to the 10 employees who received a PTC for the six month timeframe.
ACA Penalty Assessment Rule
Employers cannot receive both a 4980H(a) and 4980H(b) penalty for the same tax year.
If an organization is found in violation of both requirements, the amount is capped at what could be assessed under 4980H(a) d. The IRS issues both 4980H(a) and 4980H(b) penalties via Letter 226J.
Failure to File Penalty
In addition to the penalties for non-compliance with the ACA’s Employer Mandate, the IRS also imposes additional fines on organizations that fail to file information returns on time and provide correct payee statements. If the penalty amount isn’t paid in full, monthly interest can incur as well.
In 2024, the IRS may assess a penalty of $310 per return to organizations that submit 1095-C forms late, and after Aug. 1, 2024. If the employer neglects their filing obligations altogether, the penalty increases to $630, per return.
For example, if an organization with 300 full-time employees fails to submit the required 1095-C forms to the tax agency by Aug. 1, 2024, the IRS may impose an ACA penalty of $87,000.
The amount jumps up to $174,000 for intentional disregard, which means the organization failed to file all together.
Failure to Furnish Penalty
Similar to the failure to file penalty, the failure to furnish penalty can be imposed on employers that do not furnish accurate 1095-C statements to employees as required under IRC 6722.
Like the failure to file penalty, the failure to furnish penalty is also $310 per return and increases to $630 for intentional disregard.
Both failure to file and furnish penalties may be assessed via Letter 5005-A or Letter 972CG, depending on whether the violation is for filing late or not at all.
IRS Enforcement Continues
With the new 2024 ACA penalty amounts now widely known, organizations should turn their attention to recent IRS activity as an indication of its intentions to identify non-compliance.
The tax agency began issuing Letter 226J penalty notices for 2021 in December of 2023, confirming that it has in fact become more efficient in identifying and assessing penalties for ACA non-compliance.
In addition, the IRS ended good-faith transition relief, further illustrating a zero-tolerance policy for ACA non-compliance. When coupled with the extended access to PTCs through 2025 made available by the Inflation Reduction Act, the stakes for timely and accurate filings are high.
And since ACA reporting deadlines are fast approaching for the 2023 tax year, now is the time to ensure you’re set up for a successful filing season. If your business needs assistance managing ACA compliance requirements, consider outsourcing your obligations to Trusaic.
Since ACA reporting was first required in 2015, we’ve been at forefront in navigating the evolving IRS legislative landscape and have helped our clients prevent over $1 billion in ACA penalty assessments.
For assistance in accurately coding the 1095-C forms to minimize ACA penalty risk, download the Employers Guide to Coding the 1095-C Forms.
