Pay or Play Penalties Increase for 2023

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The IRS revised its frequently asked questions, updating the pay or play penalty amounts for 2023. The pay or play rules, also referred to as employer shared responsibility is part of the Affordable Care Act and requires applicable large employers (ALE) to offer affordable, minimum value health coverage to their full-time employees or pay a penalty.

ALEs may be 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 Exchange subsidies.

Two separate penalties can apply under these rules: Section 4980H(a) penalty and Section 4980H(b) penalty.

Section 4980H(a) Penalty: Applies when an ALE does not offer coverage to substantially all full-time employees and dependents and any one of its full-time employees receives a subsidy toward his or her Exchange plan. The monthly penalty is calculated as the ALE’s number of full-time employees (minus 30) multiplied by 1/12 of $2,000 (as adjusted) for any applicable month.

Section 4980H(b) Penalty: Applies when the ALE does not offer coverage to substantially all full-time employees and dependents and at least one full-time employee obtains a subsidy through an Exchange or the ALE’s coverage is unaffordable or does not provide minimum value. The monthly penalty is calculated as 1/12 of $3,000 (as adjusted) for any applicable month. However, the total penalty for an ALE is limited to the 4980H(a) penalty amount.

The applicable per employee dollar amounts of $2,000 and $3,000 are increased based on the premium adjustment percentage for the year.

• The adjusted $2,000 amount is $2,880
• The adjusted $3,000 amount is $4,320

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