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Avoiding the Large Employer A and B Healthcare Tax Penalties

Avoiding ACA A & B Tax Penalties: A 2024 Guide for Large Employers

Avoiding ACA A&B tax penalties for both large employers and small employers, understanding ACA tax implications and ensuring compliance with regulations is critically important.

The ACA imposes penalties on employers who fail to provide affordable, adequate health coverage to eligible employees. In 2024, these A and B tax penalties have increased, making compliance even more urgent for employer groups. Likewise, employers must stay informed and take proactive steps to avoid these costly penalties.

In this article, we will explain how to avoid ACA tax penalties, meet compliance standards, and understand ERISA’s role.

Understanding A and B Tax Penalties: 

The A and B tax penalties are two components of the ACA’s Employer Shared Responsibility Provisions. Here’s a breakdown of each penalty: 

  1. A Tax Penalty: 
  • Employers with 50 or more full-time equivalent employees (FTEs) may be subject to the A tax penalty. 
  • In 2024, the A tax penalty is $2,970 per full-time employee if one receives a premium tax credit.
  • To avoid this penalty, large employers must offer affordable, minimum essential coverage to at least 95% of full-time employees.
  • Coverage must include dependent children, or the employer may face penalties for each full-time employee not offered coverage.
  1. B Tax Penalty: 
  • Employers with 50 or more full-time equivalent employees (FTEs) may also be subject to the B tax penalty. 
  • In 2024, the B tax penalty is $4,460 per full-time employee who receives a premium tax credit through the Marketplace.
  • To avoid this penalty, employers must offer affordable coverage that meets IRS guidelines for employee premium contributions. The employee’s share of the premium must not exceed a set percentage of their household income.
  • In 2024, the affordability threshold is set at 8.39% of the employee’s income. Employers must agree to pay any plan costs above the affordability threshold. 

Avoiding A and B Tax Penalties: 

For instance, to avoid A and B tax penalties, employers, both large and small, should consider the following steps: 

  1. Offer Affordable Coverage: 
  • Employers must ensure that the health coverage they provide is affordable, meaning the employee’s share of the premium is within the affordability threshold. Employers can calculate affordability based on the employee’s W-2 wages, rate of pay, or federal poverty level. 
  • Employers should regularly review and adjust their contribution levels to maintain affordability. 
  1. Provide Adequate Coverage: 
  • The health coverage offered must also meet the minimum value requirements, providing substantial coverage and benefits to employees. 
  • Employers should consult with insurance brokers or benefits consultants to ensure the chosen health plan meets the minimum value standards. 
  1. Monitor Employee Eligibility: 
  • Employers must track and document the eligibility of their employees for health coverage. 
  • Regularly review employee hours and employment status to determine if employees fall within the definition of full-time or part-time under the ACA. 
  1. Comply with Reporting Requirements: 
  • Employers must accurately report their compliance with ACA regulations by filing the necessary forms, such as the Form 1095-C, with the IRS. 
  • Ensure information provided on Form 1095-C is complete and accurate. 

ERISA’s Role: 

The Employee Retirement Income Security Act (ERISA) plays a significant role in employee benefit plans offered by employers. ERISA sets standards for fiduciary responsibility, reporting, disclosure, and enforcement for employer-sponsored health plans. 

Employers should consult with legal counsel or benefits experts to ensure their health plans comply with ERISA requirements. This includes providing employees with a Summary Plan Description (SPD) that outlines the key features of the health plan. 

Conclusion: 

Large and small employer groups must understand the A and B tax penalties imposed by the ACA and take steps to ensure compliance. Offering affordable and adequate health coverage, monitoring eligibility, and complying with reporting requirements are essential for avoiding tax penalties. 

Enrollment First, Inc. helps employers and brokers navigate ACA compliance by offering guidance on health plans and ERISA regulations.

By staying updated on 2024 tax rules and ACA criteria, employers can avoid penalties and meet legal requirements. Understanding ERISA’s role allows employers to provide valuable coverage and protect their business from unnecessary tax liabilities.

Sources: 

[1]: Internal Revenue Service (IRS) – Affordable Care Act (ACA) Information Center for Applicable Large Employers 

[2]: Internal Revenue Service (IRS) – Health Coverage Reporting Requirements – Forms 1094-C and 1095-C 

[3]: Internal Revenue Service (IRS) – Updated Charts Regarding Section 4980H