On April 6, 2017, the IRS revised a webpage entitled “Types of Employer Payments and How They Are Calculated,” which educates applicable large employers (ALEs) (generally those employers with 50 or more full-time employees including full-time equivalent employees in the preceding calendar year) on PPACA's employer shared responsibility provisions (also known as the “employer mandate”).
The webpage first describes which payment applies when employers fail to offer minimum essential coverage (known as “Penalty A”). The description details how the payment is calculated. Note that there is certain transition relief available under this penalty for 2016 on a limited basis and for employers who offer coverage to at least 95 percent of their full-time employees, as well as those who did not previously offer coverage to dependents, but took steps during either 2014 or 2015 to extend coverage to dependents.
If an ALE is subject to Penalty A, then the annual payment will be $2,000 for each full-time employee (without regard to whether each employee received a premium tax credit), after excluding the first 30 full-time employees (was the first 80 full-time employees in 2015) from the calculation. If the ALE includes multiple ALE members (known as a “controlled group” or also sometimes referred to as an “aggregated group”), the 30- employee reduction is distributed ratably across the controlled group based on each ALE member’s number of full-time employees.
The IRS will determine whether an ALE owes this payment on a month-by-month basis although it is often referred to as an annual payment amount. Thus, an ALE who owes the payment will pay $166.67 (1/12 of $2,000) per month per full-time employee. Note that the $2,000 amount is indexed for inflation as follows:
- For calendar year 2015, the adjusted amount is $2,080;
- For calendar year 2016, the adjusted amount is $2,160; and
- For calendar year 2017, the adjusted amount is $2,260.
The second penalty applies when an employer fails to offer minimum essential coverage that provides minimum value and is affordable (known as “Penalty B”). The webpage details how the payment is calculated, which is a different calculation than for Penalty A described above. There are three examples illustrating which penalty applies and the calculations required.
If an ALE owes Penalty B, then the annual payment will be $3,000 for each full-time employee who received the premium tax credit.
Again, the IRS will determine whether an ALE owes this payment on a month-by-month basis. Thus, an ALE who owes the payment will pay $250 (1/12 of $3,000) per month for each full-time employee who received the premium tax credit. (Unlike Penalty A, this calculation does not include full-time employees who enrolled in coverage under the employer’s plan, or who had other non-Marketplace coverage, or who did not have any coverage.) The $3,000 amount is also indexed for inflation as follows:
- For calendar year 2015, the adjusted amount is $3,120;
- For calendar year 2016, the adjusted amount is $3,240; and
- For calendar year 2017, the adjusted amount is $3,390.
The total Penalty B amount cannot exceed the amount that the employer would have owed had it been liable for Penalty A, described above. This limitation ensures that the payment for an employer that offers minimum essential coverage can never exceed the payment that the employer would owe if it did not offer minimum essential coverage.
Part-time employees and full-time equivalent employees do not factor into the Penalty A or B calculation. Also, certain full-time employees are not included in the payment calculations, for example, very generally, a full-time employee in a waiting period.
Finally, the webpage defines the meaning of the term “offer of coverage” and describes how the assessment and collection of the employer shared responsibility payment will be handled by the IRS. Importantly, this payment is not deductible for federal income tax purposes.
IRS PPACA Information Page »