On Aug. 16, 2022, the IRS updated its FAQs
on the Affordable Care Act’s (ACA)
employer shared responsibility (pay or play)
rules to include updated penalty amounts
for 2023. The adjusted $2,000 penalty
amount is $2,880 and the adjusted $3,000
penalty amount is $4,320.
Pay or Play Penalty Calculations
An applicable large employer (ALE) is only
liable for a penalty if at least one full-time
employee receives a subsidy for Exchange
coverage. Employees who are offered
affordable, minimum value coverage are
generally not eligible for these subsidies.
Depending on the circumstances, one of
two pay or play penalties may apply—the
4980H(a) penalty or the 4980H(b) penalty.
Under Section 4980H(a), an ALE will be
subject to a penalty if it does not offer
coverage to “substantially all” (generally, at
least 95%) of its full-time employees (and
dependents) and any full-time employee
receives a subsidy toward their Exchange
plan. The monthly penalty assessed under
Section 4980H(a) is equal to the ALE’s
number of full-time employees (minus 30)
multiplied by one-twelfth of $2,000 (as
adjusted) for any applicable month.
Under Section 4980H(b), ALEs offering
coverage to substantially all full-time
employees (and dependents) may still be
subject to a penalty if at least one full-time
employee obtains an Exchange subsidy
because the ALE did not offer coverage to
all full-time employees, or the ALE’s
coverage is unaffordable or does not
provide minimum value. The monthly
penalty assessed under Section 4980H(b)
for each full-time employee who receives a
subsidy is one-twelfth of $3,000 (as
adjusted) for any applicable month.
However, the total penalty is limited to the
4980H(a) penalty amount.
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