IRS Increases Employer Mandate Penalties for 2023

Did you know that in 2023, the IRS is increasing penalties for the Employer Shared Responsibility Provisions (ESRP) — often referred to as the employer mandate — of the Patient Protection and Affordable Care Act (ACA)? With IRS noncompliance penalties on the rise, it’s essential that employers pay attention to the employer mandate and its requirements. Here’s what to know.

What are the requirements of the employer mandate?

The employer mandate applies to all employers who are applicable large employers (ALEs). An ALE is an employer that had an average of at least 50 full-time employees during the prior year. ALEs can include all kinds of companies, tax-exempt organizations, government entities, and even tribal governments.

The employer mandate requires ALEs to offer affordable, minimum essential health coverage to at least 95% of their full-time employees (and their dependents). Detailed requirements can be found on the IRS website. If an ALE does not adhere to these requirements, the penalties can be substantial.

How much are IRS employer mandate penalties increasing in 2023?

Following is a breakdown of what the employer mandate penalties currently are in 2022 and how they will increase in 2023:

• In 2022, for applicable large employers (ALEs) that don’t offer any coverage, the penalty is $2,750 multiplied by 30 less than the total number of full-time employees.
  
  
• In 2022, for ALEs that offer coverage that isn’t considered affordable and/or doesn’t provide minimum value per the IRS, the penalty is $4,120 multiplied by the number of full-time employees who receive a premium tax credit in the marketplace. (However, this penalty will not exceed the amount of the other penalty, so that penalty will be used instead if it’s less).
  
  
• For 2023 (see FAQ 55 in this link), the above amounts will increase to $2,880 (used to determine the penalty if the employer doesn’t offer coverage) and $4,320 (used to determine the penalty if the employer offers coverage that isn’t affordable and/or doesn’t provide minimum value, using the same formulas described above).
  
  

Determine potential liability with the Employer Shared Responsibility Provision estimator

The Employer Shared Responsibility Provision Estimator is a free tool that can help employers understand how the complicated employer mandate may apply to them, and whether or not they’re liable for penalties. Employers can use this free tool to determine:

• Their number of full-time employees — including full-time equivalent employees — according to the IRS
  
  
• Whether they might be an applicable large employer (ALE) or not
  
  
• If they are an ALE, an estimate of the maximum Employer Shared Responsibility Provision penalty/payment that could apply — based on their number of full-time employees reported — if they fail to offer compliant coverage to full-time employees
  
  

Help is here

As the IRS increases penalties for not adhering to the employer mandate, it's increasingly important for ALEs to find affordable health benefits for their employees and to stay compliant with the ACA's requirements. If you're looking for the best, affordable benefit plans for 2023. SureCo's Enrollment Platform offers 9,000+ localized plans from over 140 trusted carriers, as well as automated compliance management services.

To learn more about SureCo's alternative solution and how it can benefit mid- and large-sized businesses, download the Employer's Guide to SureCo's ICHRA Solution, which provides detailed information on ICHRA.

Sources

https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-employer-shared-responsibility-provisions-under-the-affordable-care-act

https://www.healthinsurance.org/glossary/employer-mandate

https://www.irs.gov/affordable-care-act/employers/employer-shared-responsibility-provisions

https://www.taxpayeradvocate.irs.gov/estimator/esrp/index.htm

https://www.verywellhealth.com/what-is-the-aca-s-employer-mandate-5207960