Do You Owe an ACA Penalty? Here's How to Tell

The U.S. Department of Health and Human Services has already started sending subsidy notices to employers’ mailboxes.  Now is a good time to ask yourself some simple questions regarding the Affordable Care Act’s (ACA) “play or pay” provisions to determine whether your company owes a penalty: 

Question #1: Is your company an applicable large employer?
To be considered an applicable large employer (ALE), your company must have employed an average of 50 or more full-time equivalent (FTE) employees in the preceding calendar year. If you don’t know if your company is an ALE, you can use the TriNet calculator:

If you answered “no” to this first question, your company will not owe a “pay or play” penalty.

If you answered “yes” to this question, now you must determine if your company offered ACA compliant minimum essential coverage to all full-time employees. Move on to question #2.

Question #2: Did any of your company’s employees enroll in marketplace coverage?
Did one or more of your full-time employees who are eligible for a premium tax credit opt out of the employer coverage you offer and buy coverage on the marketplace?  This is what your HHS subsidy notice will tell you. If the employee who bought coverage on the marketplace received a subsidy on their premium, you may owe a penalty.

Question #3: Did your company offer at least minimum value coverage?
Considering the coverage you offered to your employees, did the coverage meet minimum value?  In other words, did one or more medical plans cover at least 60 percent of the total cost of benefits?  If it did, you shouldn’t owe a penalty if that coverage was also affordable.

Question #4: Was the coverage your company offered affordable?
Did the minimum value coverage meet the “affordability standard” for coverage?  If the employee’s share of the premium cost less than 9.5% of the employee’s household income (9.56% in 2015; 9.66% in 2016 and 9.69% in 2017), based on one of the IRS safe harbor formulas, then the coverage met the affordability standard. 

If your company is an ALE and did not offer affordable, minimum value coverage to at least 95% of full-time employees and just one employee received a tax credit when he/she bought coverage in the marketplace in 2016, then the bad news is you will have to pay a penalty for ALL full-time employees, minus the first 30.

If you offered medical coverage that did not meet the minimum value and/or affordability standard, then a penalty will be owed for each full-time employee who received a tax credit for marketplace coverage.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

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