ACA Penalties and Parameters Updates for 2023

With penalties for noncompliance rising, employers must pay attention to changing ACA penalties and parameters for 2023.

The Internal Revenue Service has updated the revenue procedure which indexes the health plan contribution percentage required by employers when determining whether an employer’s plan is considered affordable under the Affordable Care Act (ACA). With penalties for noncompliance rising, it is vital employers pay close attention to the changing parameters around ACA regulations. As the 2022 reporting season ramps up, all eyes should be on ACA requirements and regulations for 2023. 


What is changing in 2023? 

The IRS has recently updated their Affordable Care Act Questions and Answers page, question 55, which indicates that for 2023, noncompliance for Penalty A is $2,880 ($240/month), and for Penalty B it is $4,320 ($360/month). The rising cost of noncompliance should serve as a further incentive for employers to examine their group health plan offerings to help ensure broad enough coverage to full-time employees with at least one self-only option that is affordable and provides minimum value benefits.


Definitions Explained

  • Penalty A: Failure to offer coverage to 95% of full-time, benefits eligible employees
  • Penalty B: Failure to provide affordable, minimum value coverage to a benefits eligible employee

Secondly, the affordability threshold – used for employer shared responsibility to determine whether employer-sponsored health coverage is considered affordable – is 9.12% for 2023, a decline from 9.61% in 2022. 

These percentages are used to determine the amount of household income eligible individuals can contribute toward the cost of coverage in order for coverage to be considered affordable. These changes affect how much employers can charge for health coverage for 2023 and how much in penalties employers can be assessed through Employer Shared Responsibility Payments.

The IRS has decreased the ACA affordability percentage for 2023. This percentage is important when setting employer contributions for self-only coverage for plans beginning on or after January 1, 2023. Coverage will be considered affordable if an employee’s required contribution for self-only coverage does not exceed 9.12% of their household income. Employers who are out of compliance are subject to increased IRS penalties. 

Employers currently charging employees the maximum allowable amount while maintaining affordability status will need to consider the new 2023 affordability percentage when establishing cost sharing for the upcoming plan year. 


What stays the same in 2023? 

  • Employers must continue to provide affordable coverage that provides minimum value to 95% of full-time employees for each calendar month of the year. 

  • Employers must continue to meet employer mandate requirements by managing employee eligibility. 

  • Forms 1094 and 1095 must be completed accurately and employees must be provided with information (Form 1095) in a timely manner. 

Applicable Large Employers (ALEs) must provide individual statements to recipients no later than March 2, 2023 for the 2022 reporting year. ALEs must also file all applicable reports with the IRS no later than February 28, 2023 (if filing by paper), or no later than March 31, 2023 (if filing electronically). Of note: electronic filing is mandatory for ALEs filing 250 or more forms. 

Notes for controlled groups: All companies in a controlled group are considered a single employer for ACA reporting, this includes companies with multiple common ownership or parent-subsidiary relationships. This applies to many employee benefits laws, such as anti-discrimination and the ACA. Employer shared responsibility rules discourage employers from setting up multiple companies to avoid meeting the ALE status requirement. Making sure all entities in a group are meeting ACA regulatory requirements is vital to helping avoid penalties. 


2022 and 2023 ACA Parameter Chart


Areas of focus for 2023

The IRS continues to assess potential penalties from previous reporting years. IRS penalties are often attributed to: 

  • Failure to file

  • Late filing

  • Inaccurate filing

  • Failure to meet the 95% threshold for full-time employees who didn’t receive affordable coverage

  • Met the 95% threshold but failed to offer affordable coverage to a benefits eligible employee who received coverage and was eligible for a premium subsidy through the exchange

With the stakes higher in 2023, it’s critical that your organization maintains ACA regulatory requirements. Having C-suite support can help HR teams put initiatives in place to help meet these requirements, so it’s important the C-suite understands the risks in the coming year. This strategic information was developed as a blueprint for these crucial conversations. 

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