Affordable Care Act Penalties
The following is a general overview of the penalties that may apply if employers do not comply with key
provisions under Health Care Reform. The information is subject to change based on new government
requirements or amendments to the law. Additionally, your company or group health plan may be exempt
from certain requirements and/or subject to more stringent requirements under your state's laws. If you have
any questions regarding your obligations, please consult knowledgeable employment law counsel.
Special Note: The Affordable Care Act (ACA) amends various pre-existing federal laws, including the
Internal Revenue Code (IRC) and the Employee Retirement Income Security Act (ERISA). Therefore,
enforcement of many ACA requirements may be carried out through the mechanisms provided for in those
laws. For purposes of this chart:
• The term "$100 excise tax" refers to a penalty tax, imposed on employers under the IRC, of $100 per
affected individual for each day the plan is not in compliance
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• The term "ERISA penalties" refers to a civil action by the U.S. Department of Labor (DOL) or plan
participants or beneficiaries to compel the plan or sponsor to comply with ERISA. Civil money
penalties may also apply.
All Employers (No Group Health Plan Required)
Exchange Notice
Employers must provide written notice about the Health Insurance
Exchange (Marketplace) to each new employee at the time of hiring,
within 14 days of the employee's start date.
Penalties for Noncompliance: There is no fine or penalty for failing
to provide the notice.
Break Time for
Nursing Mothers
Employers must provide reasonable break time for an employee to
express breast milk for her nursing child for 1 year after the child's birth,
as well as a place to do so (other than a bathroom) that is shielded from
view and free from intrusion from co-workers and the public.
Penalties for Noncompliance: Any employee who is terminated or
otherwise discriminated against may file a retaliation complaint with the
DOL or may file a private cause of action seeking appropriate remedies
including, but not limited to, employment, reinstatement, lost wages and
liquidated damages.
The DOL can also seek injunctive relief in federal district court and may
obtain reinstatement and lost wages for the employee.
Beginning April 28, 2023, an employer who violates an employee’s right
to reasonable break time and space to pump breast milk will be liable for
appropriate legal or equitable remedies under the FLSA. Remedies may
include employment, reinstatement, promotion, and the payment of
wages lost and an additional equal amount as liquidated damages,
compensatory damages and make-whole relief, such as economic
losses that resulted from violations, and punitive damages where
appropriate. These remedies are available regardless of whether the
employee has also experienced retaliation.
Note: Employers with fewer than 50 employees are not subject to the
break time requirement if compliance would impose an undue hardship.
Additional
Medicare Tax for
High Earners
Employers must withhold Additional Medicare Tax— at a rate of 0.9%—
on wages or compensation paid to an employee in excess of $200,000 in
a calendar year.
Penalties for Noncompliance: Employers that do not deduct and
withhold Additional Medicare Tax as required are liable for the tax, unless
the tax they failed to withhold is paid by the employee. Even if not liable
for the tax, employers that do not meet their withholding, deposit,
reporting and payment responsibilities for Additional Medicare Tax may
be subject to the applicable penalties for willfully failing to deduct and
withhold.
All Employers with 50 or More Employees
Employer Shared
Responsibility ("Pay or
Play")
Applicable large employers or ALEs (generally those with 50 or more
full-time employees, including full-time equivalents) must offer
affordable health insurance that provides a minimum level of coverage
("minimum value") to full-time employees and their dependents OR pay a
penalty tax if any full-time employee is certified to receive a premium tax
credit for purchasing coverage on the Health Insurance Exchange
(Marketplace).
Penalties for Noncompliance: There are two circumstances
under which ALEs may owe a penalty:
1. Employers Not Offering Coverage: For 2024, an ALE that does
not offer coverage or that offers coverage to fewer than 95% of its
full-time employees (and their dependents) during the calendar
year owes a penalty equal to the number of full-time employees
employed for the year (minus up to 30) multiplied by $2,970, as
long as at least one full-time employee receives a premium tax
credit. For an ALE that offers coverage for some months but not
others during the calendar year, the penalty is computed
separately for each month for which coverage was not offered.
The amount of the penalty for the month equals the number of
full- time employees employed for the month (minus up to 30)
multiplied by 1/12 of $2,970. For 2024, the rate is $2,970.
2. Employers Offering Coverage That Is Not Affordable or Does
Not Provide Minimum Value: For an ALE that offers coverage to
at least 95% of its full-time employees (and their dependents) but
has one or more full-time employees who receive a premium tax
credit, the penalty is computed separately for each month. The
amount of the penalty for the month equals the number of full-
time employees who receive a premium tax credit for that month
multiplied by 1/12 of $4,460. The penalty is the lesser of the
amount calculated or the amount that would be owed if the
employer did not offer coverage. For 2024, the rate is $4,460.
Employer
Information
Reporting on Health
Insurance Coverage
Note: Self-insured
employers providing
minimum essential
health coverage
(regardless of size)
are subject to a
separate set of
information
reporting
requirements;
however, the
penalties for
noncompliance are
the same.
Large employers subject to "pay or play" (generally those with 50 or
more full-time employees, including full-time equivalents) are required
to report certain information to the IRS and to their employees regarding
compliance with the pay or play provisions and the health care coverage
they have offered.
Penalties for Noncompliance: General reporting penalty provisions for
failure to file correct information returns and employee statements may
apply—ranging from $50-$270 per return, with a maximum penalty of
over $3 million per year (adjusted for inflation). Lower penalties may be
applicable to employers with gross receipts of $5 million or less. In
certain circumstances, penalties may be waived.
All Employers Sponsoring Group Health Plans
Employer
Payment Plans
Prohibited
Employer payment plans—arrangements under which an employer
reimburses an employee for some or all of the premium expenses
incurred for an individual health insurance policy or uses its funds to
directly pay the premium for an individual policy—are considered group
health plans that do not comply with the ACA (with exceptions, such as
certain types of HRAs).
Penalties for Noncompliance: $100 excise tax; ERISA penalties.
Dependent
Coverage to Age 26
Plans that offer dependent coverage must continue to make the
coverage available until a child reaches age 26, regardless of other
coverage options.
Penalties for Noncompliance: $100 excise tax; ERISA penalties.
No Lifetime or
Annual Limits
Plans cannot impose lifetime or annual dollar limits on coverage of
"essential health benefits."
Penalties for Noncompliance: $100 excise tax; ERISA penalties.
Note: Health plans may continue to limit the number of visits to health
providers and days of treatment so long as the visit or day limit does not
amount to a dollar limit.
No Pre-Existing
Condition
Exclusions
Plans cannot exclude individuals from coverage or limit or deny
benefits on the basis of pre-existing medical conditions.
Penalties for Noncompliance: $100 excise tax; ERISA penalties.
90-Day Limitation on
Waiting Periods
Plans cannot use a waiting period—the time that must pass before
coverage for an employee or dependent who is otherwise eligible to
enroll under the terms of the plan can become effective—that exceeds
90 days.
Penalties for Noncompliance: $100 excise tax; ERISA penalties.
Nondiscrimination for
Wellness Programs
Employers sponsoring a health-contingent wellness program in connection
with a group health plan (i.e., a program that requires an individual to satisfy
a standard related to a health factor in order to obtain a reward) must confirm
the program complies with revised nondiscrimination rules.
Penalties for Noncompliance: $100 excise tax; ERISA penalties.
Summary of Benefits and
Coverage (SBC)
Plans must provide an SBC to participants and beneficiaries at several
points during the enrollment process and upon request, explaining what
the plan covers and what it costs.
Penalties for Noncompliance: Plans that willfully fail to provide the required
information will be subject to a fine of up to $1,362 (for 2023) for each failure
(each participant or beneficiary constitutes a separate offense). Plans are
also generally subject to the $100 excise tax and ERISA penalties.
Notice of Material
Modification
Plans must ensure that participants and beneficiaries are provided with
notice of any material modification that would affect the content of the
SBC (and that occurs other than in connection with coverage renewal or
reissuance) no later than 60 days prior to the effective date of the change.
Penalties for Noncompliance: Plans that willfully fail to provide the
required information will be subject to a fine of not more than $1,362 (for
2023) for each failure (each participant or beneficiary constitutes a
separate offense). Plans are also generally subject to the $100 excise tax
and ERISA penalties.
Medical Loss Ratio
(MLR) Rebates
Employers with fully insured plans are responsible for distributing
rebates, received as a result of insurers not meeting specific standards
related to how premium dollars are spent, to eligible plan enrollees
where appropriate.
Penalties for Noncompliance: Any portion of a rebate constituting plan
assets must be handled in accordance with ERISA's fiduciary responsibility
provisions. Fiduciaries that do not follow the basic standards of conduct may
be personally liable.
PCORI Fees for Employers
Sponsoring Self-Insured
Plans
For plan years ending on or after Oct. 1, 2012, and before Oct. 1, 2029,
employers that sponsor certain self-insured plans—including HRAs that
are not treated as excepted benefits—must pay fees to fund the Patient-
Centered Outcomes Research Institute (fees are filed annually using
Form 720 and are due no later than July 31 of the year following the last
day of the plan year to which the fee applies).
Penalties for Noncompliance: Standard penalties related to late filing
or late tax payment generally apply, but these penalties may be waived
or abated if the employer has reasonable cause and the failure was not
due to willful neglect.
Form W-2 Reporting
Employers who must file 250 or more Forms W-2 for the preceding calendar
year and who sponsor a group health plan are required to report the cost of
coverage provided to each employee on the Form W-2 (provided to employees
in January), with certain exceptions.
Penalties for Noncompliance: General reporting penalty provisions for failure
to file correct information returns and employee statements may apply—ranging
from $50-$270 per return, with a maximum penalty of over $3 million per year
(adjusted for inflation)—with certain exceptions if the failure is due to reasonable
cause and not willful neglect.
Nondiscrimination Rules for
Insured Group Plans
Effective Date Delayed: Fully insured plans must comply with the rules
prohibiting discrimination in favor of highly compensated individuals, which
are currently applicable to self-insured plans.
Penalties for Noncompliance: $100 excise tax; ERISA penalties. Compliance
with the nondiscrimination provisions will not be required (and thus, any
sanctions for failure to comply will not apply) until after regulations or other
administrative guidance of general applicability are issued.
Note: Cafeteria plan health benefits remain subject to the nondiscrimination
requirements of Internal Revenue Code section 125.
Employers Sponsoring Grandfathered Group Health Plans
Disclosure of
Grandfathered Status
A plan must include a statement indicating that the plan believes it is a
grandfathered plan, along with certain other information, in any plan
materials provided to participants or beneficiaries describing plan
benefits.
Penalties for Noncompliance: Loss of grandfathered status, which requires
the plan to come into compliance with all ACA provisions that previously did
not apply because the plan was exempt.
Employers Sponsoring Nongrandfathered Group Health Plans
Preventive
Services Coverage
Plans must cover certain preventive services delivered by in-network
providers without cost-sharing (with exceptions for providing contraceptive
coverage for certain entities with sincerely held religious beliefs or moral
convictions).
Penalties for Noncompliance: $100 excise tax; ERISA penalties.
Patient
Protections
Plans must give participants certain rights with respect to choosing
a primary care provider or a pediatrician (when the plan requires
designation of a primary care physician), obtaining OB/GYN care
without prior authorization (if coverage is provided for OB/GYN care
under the plan), and coverage of emergency services (for plans
that provide such benefits).
Penalties for Noncompliance: $100 excise tax; ERISA penalties.
Note: Plans must also provide a notice to participants outlining their right
to choose a primary care provider or pediatrician, or to obtain OB/GYN
care without prior authorization, when applicable.
Reviewing Claims
Decisions
Plans must follow improved procedures regarding decisions to deny
payment for treatment or services.
Penalties for Noncompliance: $100 excise tax; ERISA penalties.
Note: Plans must also provide specific notices to participants and
beneficiaries when a claim for benefits is denied.
Coverage of
Essential Health
Benefits
Fully insured plans offered in the small group market (2-50 employees)
must cover a core package of items and services known as "essential
health benefits."
Penalties for Noncompliance: $100 excise tax; ERISA penalties.
Note: If allowed by a particular state and insurer, a small business may
be able to renew its current group coverage that does not comply with
the requirements related to essential health benefits, through policy
years beginning on or before October 1, 2020 (so long as the coverage
comes into compliance by January 1, 2021).
Limits on Cost-
Sharing
Out-of-pocket costs under the plan for coverage of "essential health benefits"
provided in-network cannot exceed certain limitations.
Penalties for Noncompliance: $100 excise tax; ERISA penalties.
Note: If allowed by a particular state and insurer, a small business may
be able to renew its current group coverage that does not comply with
the requirements related to cost-sharing limits, through policy years
beginning on or before October 1, 2020 (so long as the coverage
comes into compliance by January 1, 2021).
Employers with Tax-Favored Arrangements
Cafeteria Plan
Benefits
Employers may not provide a qualified health plan offered through the
Individual Health Insurance Marketplace as a benefit under the employer's
Section 125 cafeteria plan (a plan that meets specific requirements to
allow employees to receive benefits on a pre-tax basis).
Penalties for Noncompliance: In general, if a plan fails to operate in
compliance with Section 125, it is not considered a cafeteria plan and
employees' elections of nontaxable benefits will result in gross income
to the employees. ERISA penalties may also apply.
Note: This requirement does not apply to group coverage offered
through the SHOP Marketplace.
Health FSAs Through
Cafeteria Plans
A health flexible spending account (FSA) must be offered through a
cafeteria plan in order to comply with the annual dollar limit prohibition.
Penalties for Noncompliance: $100 excise tax; ERISA penalties.
Health FSAs as Excepted
Benefits
A health FSA must qualify as excepted benefits to comply with the
preventive services requirements.
Penalties for Noncompliance: $100 excise tax; ERISA penalties.
Health FSA
Contribution
Limits
The amount of salary reduction contributions to health FSAs in
2023 must be limited to $3,050 annually. Written cafeteria plans
must reflect this change.
Penalties for Noncompliance: If a cafeteria plan fails to operate in
compliance with Section 125 or fails to satisfy any of the written plan
requirements for health FSAs, the plan is generally not considered a
cafeteria plan and employees' elections of nontaxable benefits result in
gross income to the employees.
Note: If a cafeteria plan timely complies with the written plan requirement
limiting health FSA salary reduction contributions, but one or more
employees are erroneously allowed to elect a salary reduction of more
than the limit for a plan year, the plan may still be considered a
cafeteria plan for that plan year if certain conditions are satisfied.
Health Reimbursement
Arrangements
Depending on the type of HRA offered (two options are available for
plan years beginning in 2020), the HRA must satisfy certain plan
design requirements.
Penalties for Noncompliance: $100 excise tax; ERISA penalties.
Health Programs That Receive Federal Financial Assistance
ACA Section 1557
Nondiscrimination
Requirements
Entities administering any health program or activity that receives federal
financial assistance (such as hospitals that accept Medicare or doctors
who accept Medicaid) must comply with the final rule implementing
Section 1557 of the ACA, which prohibits discrimination on the basis of
race, color, national origin, sex, age or disability.
Penalties for Noncompliance: The enforcement mechanisms available
for employment discrimination under existing federal laws also apply for
purposes of Section 1557. Click here for a list of remedies where
discrimination is found under these laws (refer to Section XIII).
Compensatory damages for violations of Section 1557 are also available
in appropriate administrative and judicial actions.
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The excise tax applies on the day a failure first occurs and ends on the day the
failure is corrected. The minimum tax is $2,500 for violations not corrected before the
date a notice of examination of income tax liability is sent to the employer, and that
occur or continue during the period under examination. The minimum tax for violations
determined to be more than "de minimis" is $15,000.
No excise tax will be imposed if:
• The employer did not know, and exercising reasonable diligence would not
have known, that a failure existed; or
• The failure was due to reasonable cause and not willful neglect, and such
failure is corrected during the 30-day period starting from the date the
employer knew, or exercising reasonable diligence would have known, that
such failure existed.
o If the failure was not corrected within 30 days, the maximum tax
imposed will be the lesser of $500,000 or 10% of the amount paid or
incurred by the employer during the preceding taxable year for its
group health plans.
Additionally, the tax may not apply to certain fully insured small employer plans
(generally those with no more than 50 employees, see Section 4980D(d)) for a failure
to comply that is solely because of the health insurance coverage offered by the issuer.
