March 20, 2023
The Internal Revenue Service (IRS) recently released a new revenue procedure, Rev. Proc. 2023-17, which, among other things, outlines the inflation adjustments for the employer shared responsibility payments (ESRP) under the Affordable Care Act (ACA). The ESRP penalties have been increased for the 2024 calendar year. Employers should be aware of these changes and prepare accordingly to avoid potential penalties. The remainder of this article will discuss the new penalty amounts and discuss the implications for employers.
ACA Penalties for 2024
According to the revenue procedure, the Department of Health and Human Services (HHS) has published the premium adjustment percentage for 2024 based on the most recent National Health Expenditure Accounts (NHEA) income and premium data available. For the 2024 benefit year, the premium adjustment percentage is 1.4899877401. With the premium adjustment percentage provided, all the numbers necessary to calculate the 2024 section 4980H penalty amounts are known. The equations with the numbers filled in are:
$2,000 * 1.4899877401= $2,979.98
$3,000 * 1.4899877401 = $4,469.96
The Code’s rounding rule instructs us to round to the next lowest multiple of $10 (if the number is not a multiple of $10). Therefore, the correct numbers to use when calculating the potential section 4980H penalties for 2024 are:
Section 4980H(a) penalty amount = $2,970
Section 4980H(b) penalty amount = $4,460
Implications for Employers
The increase in ACA penalties for 2024 has several implications for employers, which include:
Increased financial exposure: With the higher penalty amounts, employers who do not offer minimum essential coverage (MEC) or who offer unaffordable coverage or coverage that does not provide minimum value to their full-time employees could face additional financial exposure compared to previous years. Employers should review their health coverage offerings and make necessary adjustments to minimize potential penalties.
Importance of accurate reporting: Employers must ensure accurate and timely reporting of their health coverage information to the IRS. Failure to do so may result in penalties in addition to the ESRP. Employers should invest in tools or seek assistance from professionals to streamline their reporting process and avoid costly mistakes.
Continued compliance monitoring: Employers should stay informed about the latest ACA regulations and guidelines. This includes monitoring potential changes in the premium adjustment percentage and other factors that may affect ESRP amounts in future years. Staying up-to-date on regulatory changes helps employers maintain compliance and avoid unexpected penalties.
Employee communication: Employers should keep their employees informed about any changes to their health coverage offerings. Clear communication about coverage options, costs, and enrollment periods can help employees make informed decisions about their health insurance and reduce the likelihood of disputes or misunderstandings that could lead to penalties.
Strategic planning: Employers should consider the increased ESRP amounts when developing their strategic plans for employee benefits and health coverage.
The increase in ACA penalties for 2024 serves as a reminder for employers to review their current health coverage offerings, ensure compliance with the ACA regulations, and stay informed about future changes. By taking proactive measures, employers can mitigate their financial risks and provide valuable health benefits to their employees. Too many employers have become aware that the IRS is serious about penalizing employers who fall short of the ACA requirements. If you are interested in learning about our tools to ensure accurate Forms are submitted to the IRS or you need assistance filing the Forms 1094-C and 1095-C, please don’t hesitate to contact us.
About the authors – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorneys P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.
Ryan Helsing serves as Chief Technology Officer at Accord Systems, LLC and is nationally recognized as a leader in employee benefits industry technology creation, starting in his mid-teen years with creations such as Benefit Pods. With a Computer Science background, expertise in Ruby on Rails development and a deep understanding of the ACA law, Ryan created the Accord software, and was most recently recognized by Employee Benefits News as a Tech Innovator.
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