Healthcare Penalties

The Affordable Care Act includes penalties for both individuals and employers who do not meet the coverage mandates.

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Individual Penalty

Your employees will be required to have coverage under the Act, and must obtain and pay for this coverage on their own if it is not provided by their employer. Individuals must ensure that they and their dependents are covered. If not, beginning in 2014 they will be subject to an annual penalty. In 2014 the penalty is $95 but it increases annually, reaching the greater of $695 per calendar year OR up to 2.5% of income in 2016. The penalty for dependents under 18 is half of the individual penalty per calendar year, up to a cap of $2,250 for the entire family.

Employer Penalty

Large employers covered by the law's employer mandate face two possible types of penalties:

Penalty A
If a large employer does not offer any coverage, or offers coverage to less than 70% in 2015 and 95% in 2016 of his or her full-time employees, and any full-time employee uses a tax credit to purchase insurance on an exchange, the employer is liable for a $2,000 annual penalty times the total number of full-time employees, minus your first 30 full-time employees minus 80 in 2015 only. This is the 4980H(a) penalty, named for the section of tax code that contains it.

Penalty B
If a large employer offer coverage to full-time employees, but at least one full-time employee receives a premium tax credit to help pay for coverage on an exchange – either because the employer-provided insurance is not affordable or fails to provide “minimum value” -- the “4980H(b)” penalty applies. You’ll face a $3,000 penalty for every full-time employee an exchange certifies as eligible for a premium tax credit to help them purchase insurance on an exchange. The payment is computed separately for each month. The amount of the payment for the month equals the number of full-time employees who receive a premium tax credit for the month multiplied by 1/12 of $3,000. Your liability in this scenario can never exceed the total penalty you’d pay for not offering coverage at all.

 

 

Source: Congressional Research Service