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The IRS updated the frequently asked questions on the pay or play penalties to include the increased penalty amounts for the 2021 calendar year. The pay or play rules, also referred to as employer shared responsibility or employer mandate provision, 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.
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. This penalty is calculated as the ALE’s number of full-time employees (minus 30) x $2,000 (as adjusted).
Section 4980H(b) Penalty: Applies when the ALE does not offer coverage to all full-time employees, or the coverage is unaffordable and doesn’t provide minimum value. This penalty is calculated as $3,000 x the number of the ALE’s full-time employees who receive an exchange subsidy.
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 $2,700; and
- The adjusted $3,000 amount is $4,060
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