Starting in 2014, there are two types of penalties that will be imposed: the “No Coverage” penalty and the “Unaffordable Coverage” penalty. The penalty amounts will be adjusted for inflation after 2014.
No Coverage Penalty:
If a Large Employer doesn’t offer minimum essential health coverage to 95% of its Full-Time employees and their dependent children, and at least one full-time employee gets subsidized coverage, the employer will pay the no coverage penalty.
No Coverage Penalty Amount: $166.67 per month for each full-time employee ($2,000 per employee per year), excluding the first 30 employees from the calculation.
Unaffordable Coverage Penalty:
Applies if the minimum essential health coverage offered by an employer is deemed unaffordable, as determined by the Safe Harbor testing.
Unaffordable Coverage Penalty Amount: $250 per month per Full-Time employee receiving premium assistance (Max $3,000 per employee per year). Maximum penalty not to exceed the amount of the “No Coverage Penalty” calculated for each month.
The IRS has given business owners ways to protect themselves from these fines by outlining Health Insurance Safe Harbors.
- Form W-2 – Employee’s contribution for the year does not exceed 9.5% of the W-2 Box 1 wages
- Rate of Pay – Monthly contribution is affordable if it does not exceed 9.5% of the monthly wage
- Federal Poverty Line – Coverage is affordable if it does not exceed 9.5% of the Federal Poverty Line
For a more detailed explanation of Safe Harbors you should read our blog
All penalties are payable upon notice and demand. All penalties will be decided, calculated and collected by the IRS. Also a business will not be able to deduct penalties as a business expense. In other words you will pay income taxes on these penalties also.
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