Avoiding the Large Employer A and B Healthcare Tax Penalties
For large and small employer groups, understanding the tax implications of the Affordable Care Act (ACA) and ensuring compliance with ACA regulations is crucial. The ACA imposes tax penalties on employers who fail to offer affordable and adequate health coverage to their employees. In 2024, employers need to be even more vigilant as the A and B tax penalties have increased. In this article, we will explore the steps employers can take to avoid these tax penalties, the ACA compliance criteria for health plans, and the role of ERISA in employee benefit plans.
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:
- 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 FTE when at least one employee receives a premium tax credit for coverage through the Health Insurance Marketplace.
- To avoid the A tax penalty, large employers must offer affordable, minimum essential coverage to at least 95% of their full-time employees (and their dependent children) or face penalties for each uncovered employee.
- 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 FTE who receives a premium tax credit (subsidy) for coverage through the Health Insurance Marketplace.
- To avoid the B tax penalty, employers must ensure that the coverage offered is affordable, which means the employee’s share of the premium does not exceed a certain percentage of their 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:
To avoid A and B tax penalties, employers, both large and small, should consider the following steps:
- 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.
- 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.
- 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.
- 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 can assist employers and insurance brokers in navigating the complex landscape of ACA compliance, providing guidance on suitable health plans and ensuring ERISA compliance.
By staying informed about tax information for the 2024 plan year, understanding ACA compliance criteria, and recognizing ERISA’s role, employers can protect themselves from tax penalties and provide valuable health coverage to their employees.
Sources:
[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