Recently, the IRS announced 2024 indexing adjustments to the applicable dollar amount used to calculate employer shared responsibility penalties under the Affordable Care Act (ACA).
Although next year might seem a long way off, it’s best to get an early start on determining whether your business is an applicable large employer (ALE) under the ACA. If so, you should also check to see whether the health care coverage you intend to offer next year will meet the criteria that will exempt you from a penalty.
The magic number
For ACA purposes, an employer’s size is determined in any given year by its number of employees in the previous year. Generally, if your company has 50 or more full-time employees or full-time equivalents on average during the previous year, you’ll be considered an ALE for the current calendar year. A full-time employee is someone who provides, on average, at least 30 hours of service per week.
Under the ACA, an ALE may incur a penalty if it doesn’t offer minimum essential coverage that’s affordable and/or fails to provide minimum value to its full-time employees and their dependents. The penalty in question is typically triggered when at least one full-time employee receives a premium tax credit for buying individual coverage through a Health Insurance Marketplace (commonly referred to as an “exchange”).
Next year’s penalties
The adjusted penalty amounts per full-time employee for failures occurring in the 2024 calendar year will be:
- $2,970, a $90 increase from 2023, under Section 4980H(a), “Large employers not offering health coverage,” and
- $4,460, a $140 increase from 2023, under Sec. 4980H(b), “Large employers offering coverage with employees who qualify for premium tax credits or cost-sharing reductions.”
The IRS uses Letter 226-J to inform ALEs of their potential liability for an employer shared responsibility penalty. A response form — Form 14764 (“ESRP Response”) — is included with Letter 226-J so that an ALE can inform the IRS whether it agrees with the proposed penalty. A response is generally due within 30 days. Be on the lookout for this letter so that you’re prepared to promptly review and respond if the IRS contacts you.
Questions and ideas
Careful compliance with the ACA remains critical for companies that qualify as ALEs. Growing small businesses should be particularly wary as they become midsize ones. Our firm can answer any questions you may have about your obligations as well as suggest ways to better manage the costs of health care benefits.