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You probably already heard about the Obamacare tax penalty. It was one part of the 2010 Affordable Care Act (also called ACA or Obamacare) that required all Americans to buy health insurance (if you didn’t, you were fined!).
As of 2019, the tax penalty for individuals has been repealed in most states. But, the Obamacare employer mandate still affects large workplaces today.
The employer mandate is similar in principle to the individual mandate, except that it addresses companies. The employer mandate requires “large” businesses – those with 50 or more full time employees – to offer affordable health insurance to their workers and their employees’ children. If they don’t provide health insurance that meets certain requirements, they face hefty penalties.
Many Americans wonder how this law applies to their workplace. Does your employer have to offer health insurance? And what happens if your employer doesn’t provide the “right” health insurance? In this piece, we’ll break it down into everything you need to know.
What is the Obamacare Employer Mandate?
The employer mandate is a part of the Obamacare law which requires large companies to offer affordable health insurance that meets the minimum value requirement. To be affordable, the health insurance premium cannot be more than 9.83% of an employee’s income. And to meet the minimum value, the insurance must pay at least 60% of the costs on average.
The employer mandate only applies to Applicable Large Employers (ALEs). These are companies that employ 50 or more full-time equivalent employees (FTE). If the employer has 49 or less FTE employees, then they don’t have to worry about this mandate.
If qualifying ALEs do not comply with the employer mandate, then they have to pay a fine to the government — also known as an “Obamacare Employer Mandate Tax.”
What’s the Obamacare Employer Mandate Tax?
This is an additional tax that ALEs who do not comply with the employer mandate have to pay. These taxes vary based on which part of the Obamacare employer mandate they did not adhere to. There are three types of Obamacare employer mandate taxes.
The “A” Penalty
If an ALE fails to offer employees minium essential coverage, they will be taxed $2,570 for each full time employee that year. The fine is broken down by month, amounting to $208.33 per month per FTE.
There is a catch that benefits “smaller” large employers. The “A” penalty does not apply to the first 30 full-time employees. So if the company offers no coverage to their 55 employees, their tax penalty will only apply to 25 employees.
The “B” Penalty
Another penalty scenario exists for ALEs who offer employees health insurance coverage that does not meet Obamacare employer mandate quality or affordability standards. In this case, the ALE will be charged $3,750 for each full-time employee.
However this only applies to employees who got a monthly premium subsidy (essentially, an income-based discount) after opting to get ACA health insurance on their own.
Like the Sledgehammer Tax, the Tack Hammer tax is also broken down into monthly installments and does not apply to the first 30 employees.
There is an additional exception to the Tack Hammer tax which makes it less frightening to employers than the Sledgehammer Tax. The total amount a company owes can’t exceed the penalty they would have paid had they offered no coverage. Even though a company will owe more in taxes per employee under a Tack Hammer penalty, they won’t owe more in total.
Non-Filing Tax Penalty
Even if your company provides qualifying health insurance, it can still be penalized for the wrong paperwork. It is important that ALEs file the right documentation, on time, or else they’ll be taxed.
If a qualifying large employer fails to file year-end 1095-C and 1094-C forms with the IRS, they will be taxed at least $540 per full-time employee.
Here are the deadlines for 2020:
- March 2, 2021: 1095-Cs must be sent to employees
- February 28, 2021: 1094-Cs must be sent to the IRS via a paper or e-filing
- March 31: If your company has over 250 employees, they must e-file by this date
Who is Considered a Full-Time Employee?
According to ACA regulations, there are four main things that determine if you are a full-time employee relating to the Obamacare employer mandate.
- A full-time employee averages at least 30 hours of service per week in a month.
- A full-time employee can also be someone who works 130 hours over the course of a month.
- One “hour of service” refers to an hour in which the employee earns a wage that adheres to the federal wage laws. This also includes job performance, vacation time and sick pay.
- If you volunteer, are working under a federal work study program, are interning or involved in a similar wage-exempt arrangement, this does not count towards full-time status.
Do You Have to Buy Insurance Offered by Your Employer?
No. But, your Applicable Large Employer is required to offer you a fair and affordable option. For example, under the law, the plan offered to the company’s employees can’t cost more than 9.83% (adjusted yearly based on the federal poverty level) of your yearly salary.
The plan chosen by an Applicable Large Employer also has to meet the minimum value, a set of standards the health insurance plan offered employees must cover, including:
- 60% of the total cost of medical services
- Substantial coverage for hospital and physician services
These are just a couple of examples of the rules for the employer mandate. If your employer fails to meet these standards, they will be fined by the IRS for violating these terms.
What If You Don’t Want Insurance From My Employer?
There are two main categories employees fall into when they do not want to buy the health insurance plan offered by their Applicable Large Employer of 50 people or more.
1. If Your Company Meets ACA Standards…
If your Applicable Large Employer offers you a health insurance plan that meets the government mandate standards, but you still don’t want to enroll in it, you can shop for ACA (or alternative) plans instead.
If you’re interested in a Marketplace plan, during the Open Enrollment Period — which usually runs between November and December — you can shop and compare different health insurance options on trusted sites like HealthCare.com.
But because your company has offered insurance that meets the standards, you do not qualify for a tax discount — known as a subsidy — on this outside health insurance plan.
Because there is no longer a national individual mandate, if you do not want to buy health insurance, you can do so without penalty in most states.
2. If Your Company Does Not Meet ACA Standards…
Sometimes, Applicable Large Employers do not meet the employer mandate standards. If this is the case for you, you can benefit from a traditional premium subsidy — or discount — if you still decide to buy health insurance.
This commonly occurs if the health insurance option(s) offered to you by your large employer costs more than 9.83% of your income and you cannot afford it.
If you do not want to purchase this health insurance, you can shop for individual health insurance like everyone else. But, you may benefit from a discount towards your health insurance costs that year, assuming that you’re eligible based on your income.
Is the ACA Employer Mandate Delayed? What’s the Start Date?
Politicians may be debating the law, but as of now, the ACA employer mandate is still in effect, and ALEs are required to comply with the law for the coming year.
Each year, Applicable Large Employers have to file or re-file the right documents to prove to the government that they are offering employees approved health insurance at the right time.
This is done by sending two forms: the 1095-C and 1094-C to the IRS. Each employee should also get a copy of the 1095-C for their records. You may need this if you qualify for a premium tax credit.
What The Obamacare Employer Mandate Means For You
The Affordable Care Act has a lot of different components, taxes and rules attached to it. Still, we hope this has helped clear up what the employer mandate is, if your company should comply, and what it means for you.
