Penalty A and B: What Employers Need to Know

Penalty A and B: What Employers Need to Know

Navigating the complexities of the Affordable Care Act (ACA) can be challenging for employers, particularly when it comes to understanding and avoiding penalties. Known as Penalty A and Penalty B, these fines are imposed on employers who fail to meet specific requirements. Here’s what you need to know to stay compliant and avoid unnecessary costs.

What is Penalty A?

Penalty A, also known as the “A Penalty” or the “4980H(a) Penalty,” applies to large employers who do not offer minimum essential coverage to at least 95% of their full-time employees and their dependents. This penalty is triggered if even one full-time employee receives a premium tax credit to purchase coverage through the Health Insurance Marketplace.

How it Works:

  • Trigger: Failure to offer coverage to 95% of full-time employees.
  • Amount: The penalty for 2024 is $2,880 per full-time employee, minus the first 30 employees.

What is Penalty B?

Penalty B, also known as the “B Penalty” or the “4980H(b) Penalty,” applies when an employer does offer minimum essential coverage, but the coverage does not meet affordability or minimum value standards. This penalty is also triggered if a full-time employee receives a premium tax credit.

How it Works:

  • Trigger: Coverage offered does not meet affordability or minimum value standards.
  • Amount: The penalty for 2024 is $4,320 per full-time employee who receives a premium tax credit, capped at the amount that would be owed under Penalty A.

Avoiding Penalty A and B

To avoid these penalties, employers need to ensure their health plans meet specific criteria. Here are key strategies:

  1. Offer Minimum Essential Coverage: Ensure that you offer health coverage to at least 95% of your full-time employees and their dependents.
  2. Ensure Affordability: The employee’s share of the premium for the lowest-cost, self-only coverage should not exceed a specified percentage of their household income. For 2024, this percentage is 9.83%.
  3. Meet Minimum Value Standards: The plan should cover at least 60% of the total allowed cost of benefits that are expected to be incurred.

Benefits of Compliance

Complying with these requirements not only helps you avoid penalties but also enhances your reputation as a responsible employer. Providing affordable, comprehensive health coverage can improve employee satisfaction and retention, which is crucial in today’s competitive job market.

Conclusion

Understanding and avoiding ACA penalties is essential for large employers. By offering minimum essential coverage that is affordable and meets minimum value standards, you can steer clear of costly penalties and provide valuable benefits to your employees. At Beni Solutions, we are committed to helping you navigate the complexities of ACA compliance with innovative, cost-effective health plans that meet all regulatory requirements.

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