Employer Penalties for Not Offering Required Coverage

Employers with 50 or more employees (including full-time and full-time equivalent employees) that do not offer health coverage to their full-time employees (and dependents) that is affordable and provides minimum value will be subject to penalties if any full-time employee receives a government subsidy for health coverage through an Exchange. The sections of the health care reform law that contain the penalty requirements are known as the “shared responsibility” provisions.

The size of the employer for the shared responsibility rule is based on the average size for the prior calendar year. Part-time employees are included in the calculation according to a formula but are not required to be offered coverage. Special rules apply to counting seasonal employees, foreign employees and temporary agency employees. Companies with common ownership may have to be combined for purposes of this rule.

The penalty amount for not offering health coverage is up to $2,000 annually for each full-time employee, excluding the first 30 employees. Under proposed IRS regulations, an employer would not be liable for this penalty if it offers coverage to all but five percent (or, if greater, five) of its full-time employees and dependents.

Employers who offer health coverage, but whose employees receive tax credits because the coverage is unaffordable or does not provide minimum value, will be subject to a fine of up to $3,000 annually for each full-time employee receiving a tax credit, with a maximum annual fine of $2,000 per full-time employee (excluding the first 30 employees).

The IRS has provided safe harbor guidance for employers on determining who is considered a full-time employee (and must be offered coverage), along with how to measure a plan’s affordability and how penalties will apply when there is a waiting period for coverage. Guidance has also been issued on ways to determine a plan’s minimum value, including a calculator.