ACA Penalty Calculator and California Mandate Penalty Tool


Word & Brown is committed to providing tools to help brokers like you better serve the needs of your business clients – both large and small. That includes making it easier for businesses to determine their group size and whether they are subject to the Affordable Care Act (ACA) “play or pay” mandate (also known as the Employer Shared Responsibility Provisions), potential Internal Revenue Code (IRC) penalties, etc.

ACA Reporting to the IRS

Annual information reporting to the IRS is required on fully insured plans relating to the health insurance offered (or not offered) to Full Time employees and their dependents. Additional reporting to the IRS is required by health insurance issuers, employers with self-insured plans, government agencies, and other providers of health coverage.

ACA Penalty Calculator

If your client’s business is an Applicable Large Employer (ALE), the firm could face an ACA penalty if any full-time employee purchases Individual and Family Plan (IFP) insurance through a state health insurance marketplace (like Covered California or the Nevada Health Link) and qualifies for a Premium Tax Credit (PTC).

Under the IRC, the employer faces a potential 4980H ACA non-compliance penalty if it does not offer:

  • 4980H (a): Minimum Essential Coverage (MEC) to at least 95% of (all but the greater of either 5% or five) full-time employees and their dependent children to age 26, and at least one full-time employee receives subsidized individual coverage from a state health marketplace, utilizing a PTC. [Under the ACA, MEC plans must have an actuarial value of 60% or more and must include 10 Essential Health Benefits (EHBs), including ambulatory patient services, emergency services, hospitalization, maternity and newborn care, prescription drugs, lab services, and others. Link here to visit for complete details on EHBs.]
  • 4980H (b): Coverage that is “affordable” and/or does not meet minimum value, and at least one full-time employee receives subsidized individual coverage from a state marketplace, utilizing a PTC.

To determine “affordability,” we recommend using Word & Brown’s Affordability Calculator, which is accessible through the Broker Resources / Compliance / ACA Compliance Collateral & References section of our website.

The affordability determination is based on the self-only premium for the lowest-cost plan offered to full-time employees. In 2020, the affordability ratio is 9.78%; for 2021, it’s 9.83%. (It is determined for each plan year, not the calendar year; if a plan year extends from one calendar year into another, it is subject to two affordability calculations per calendar year.)

The adjusted 4980H ACA non-compliance penalties for the 2021 tax year are $2,700 per eligible FT employee under section 4980H(a) and $4,060 per eligible FT employee under 4980H(b). Amounts are annualized, though assessed on a monthly basis, and reflect whether an employee is not offered MEC or is offered MEC that fails to provide minimum value or is unaffordable. Either non-compliance penalty may apply for an ALE, but never both. Penalty B cannot exceed the amount the employer would have owed if it had been liable for Penalty A.

The penalty only applies to the month(s) in which an employer is out of compliance for any employees. For example, if an employee is hired in December, the employer could only be penalized for December – not for January to November (while not an employee). Other exemptions apply, including applicable waiting periods, ACA measurement periods, and more. You can access the Word & Brown Penalty Calculator here. (Scroll down and click on the first calculator link in the list.)

California Individual Mandate Penalty

If you’re a California broker (or a Nevada broker working with California businesses or with business clients who have employees residing in California), another thing you need to consider is the non-compliance cost associated with the state individual mandate, which began on January 1, 2020, and continues in 2021.

Under the California Minimum Essential Coverage Individual Mandate, all Californians are required to have qualifying health insurance for all months of the year, obtain an exemption, or pay a fine to the California Franchise Tax Board.

Individuals must have Minimum Essential Coverage (MEC) – which is employer-sponsored coverage, an Individual and Family Plan (such as one acquired through the Covered California exchange or directly from a broker or insurer), Medicare, or Medicaid (Medi-Cal in California) coverage, etc.

The California Franchise Tax Board released an Individual Shared Responsibility Penalty Estimator to help Californians understand their non-compliance exposure. The penalty is roughly 2.5% of a person’s gross income exceeding threshold requirements based on tax filing status and number of dependents – or a variable amount, which adjusts annually with inflation. (Currently, it is $750 per adult and $375 per child.) The penalty is due when filing a California state tax return for those not eligible for an exemption or those without qualifying health coverage. (For more information, visit the California Franchise Tax Board website here.)

Help When You Need It

No other General Agency offers the products and services, sales and service tools, and compliance expertise you get from Word & Brown. Visit us online for the address and phone number of the Word & Brown office nearest to you, or contact the WBCompliance team at 866.375.2039.

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