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Employers with at least 50 full-time employees are considered an Applicable Large Employer (ALE) and are subject to the Employee Shared Responsibility Provisions (ESRP) for the ACA. As part of these requirements, employers need to offer benefits to employees as they become eligible under the law. Each individual ALE must offer affordable benefits that meet minimum value to at least 95 percent of their full-time employees.

Each year, the IRS requires ALEs to furnish Form 1095-C to their employees and file with the IRS. There are new specifications that provide some flexibility for printing of 1095-B forms. These forms as well as Form 1094 must be filed with the IRS and in some cases with states that have an individual mandate. The IRS and the states that require reporting and filing don’t always share the same due dates each year.

Employers who miss deadlines or who may not be in compliance with the law can receive 4980H or IRC6721/6722 penalties from the IRS. These potential penalties can easily grow into the millions for organizations with a large workforce.

The employer shared responsibilities is the law that requires applicable employers to offer ACA qualified benefits to most of their full-time employees. The law was intended to support the intent of the ACA legislation which is to provide access to affordable healthcare benefits to more people.

As a core component of the employer shared responsibility provision (ESRP), applicable large employers (ALEs), defined as companies with at least 50 employees, must offer healthcare that meets minimum essential coverage (MEC) requirements to 95 percent of their full-time employees and their dependents.

In addition, under the ACA Employer Shared Responsibility provisions (ESRP), for coverage to be deemed affordable, it must not exceed the law’s affordability threshold, which in 2023 is 9.16% of an employee’s household income. Because the employer may not know the household income, there are three safe harbors that can be used to determine affordability. This affordability threshold percent is adjusted for every plan year. Employers may be assessed a penalty for each employee who is not offered affordable coverage who receives a premium subsidy on the public exchange.

These ACA requirements can become much more complicated for employers who are experiencing merger and acquisition (M&A) activity.

If an employer does not meet these offer of coverage requirements, or affordability requirements, they may receive a 226-J letter from the IRS indicating they may be subject to a penalty.

Each year, the IRS adjusts the potential penalty risk and parameters for the employer shared responsibilities provision. For 2024, the penalty for failures to offer coverage to 95% of full-time employees in 2024 is $2,970 a month per employee. This is also referred to as penalty A. The penalty for failure to provide affordable, minimum value coverage to a full-time employee in 2024 is $4,460 for each employee who was not offered employer coverage and instead received a premium subsidy through the individual market exchange. This is also referred to as Penalty B. These penalty amounts continue to grow.

Another critical change for Tax Year 2024 is the reduction of the ACA affordability threshold from 9.12% in 2023 to 8.39% in 2024.

Penalties for non-compliance differ and can add up fast. Those companies that do not follow strict ACA guidelines based on the parameters provided from the IRS may be subject to penalties. Typically, employers are informed of potential compliance violations through 226-J letters.

When the individual penalty for not carrying insurance was made unenforceable in 2019, some states enacted individual mandate reporting for employers with employees who reside in their states. These states include California, Washington D.C, New Jersey, Rhode Island, Massachusetts, Vermont.