Q: Can you provide examples of the employer mandate tax penalties?

A: The five examples that follow cover a range of employer tax scenarios.

Example A: The large employer does not offer coverage, but no full-time employees receive credits for exchange coverage. No penalty would be assessed.

Example B: The large employer offers coverage and no full-time employees receive credits for exchange coverage. No penalty would be assessed.

Example C: The large employer does not offer coverage, and one or more full-time employees receive credits for exchange coverage. The annual penalty calculation is the number of full-time employees minus 30, times $2,000. The penalty does not vary if only one employee or all fifty employees received the credit; the employer’s annual penalty in 2014 would be $40,000 calculated as follows:

50 – 30 = 20

20 x $2,000 = $40,000.

Example D: The employer offers health plan coverage, but one or more full-time employees receive credits for exchange coverage. The number of full-time employees receiving the credit is used in the penalty calculation for an employer that offers coverage. The annual penalty is the lesser of the following:

  • The number of full-time employees minus 30, multiplied by $2,000, or $40,000 for the employer with fifty full-time employees, as shown in Example C, or
  • The number of full-time employees who receive credits for exchange coverage, multiplied by $3,000.

Thus, for an employer that hires only full-time employees, hiring that fiftieth employee could trigger a penalty of $40,000 if the employer does not offer health coverage to its employees. This will likely affect hiring for small employers close to the “applicable large employer” fifty full-time-equivalent employee limit.

Although the penalties are assessed on a monthly basis (with the dollar amounts above then divided by 12), this example uses annual amounts, assuming the number of affected employees is the same throughout the year.

Example E: If the employer with fifty full-time employees had ten full-time employees who received premium credits, then the potential annual penalty on the employer for those individuals would be $30,000. Because this is less than the overall limitation for this employer of $40,000, the employer penalty in this example would be $30,000.

However, if the employer with fifty full-time employees had thirty full-time employees who received premium credits, then the potential annual penalty on the employer for those individuals would be $90,000. Because $90,000 exceeds this employer’s overall limitation of $40,000, the employer penalty in this example would be limited to $40,000.

For more health care reform Q&As, see:

Health care reform FAQ: How are full-time employees calculated?

Health care reform FAQ: Which benefits are not governed by PPACA?