The Affordable Care Act (ACA) eliminated the federal individual mandate penalty starting in 2019. That means individuals are no longer penalized on their federal tax returns for not having health insurance. However, the rules are different for employers and individuals in certain states, and the stakes for employers are significant. As an expert in employee benefits compliance, I’ll break down exactly who faces penalties, how they’re calculated, and what you need to avoid costly fines.
Employer Shared Responsibility Penalties (ESRP)
Under the ACA’s Employer Mandate, applicable large employers (ALEs) with 50 or more full-time equivalent employees must offer affordable, minimum value health coverage to at least 95% of their full-time employees and their dependents. Failure to do so triggers penalties under IRC Section 4980H. There are two types of penalties:
Penalty A: “No Coverage” Penalty
If an ALE fails to offer coverage to at least 95% of its full-time employees (and their dependents), and at least one full-time employee receives a premium tax credit through the Exchange, the penalty is steep. For 2023 and 2024, the annual penalty is $2,880 per full-time employee (excluding the first 30 employees). This penalty applies to all full-time employees, not just those receiving credits.
Penalty B: “Unaffordable or Non-Minimum Value” Penalty
If an ALE offers coverage but it’s either unaffordable (employee’s share of single coverage exceeds 8.39% of household income for 2023) or fails to provide minimum value (plan pays less than 60% of covered benefits), and a full-time employee receives a premium tax credit, the penalty is $4,320 per employee receiving the credit (2023 amount). This is per affected employee, not all employees.
Current State-Level Individual Mandate Penalties
While the federal penalty is gone, several states and the District of Columbia have their own individual mandates with penalties. If you live or work in these areas, you may still face a fine for not having health coverage:
- California: Penalty is calculated based on income and household size, similar to the old federal formula. For 2023, the minimum penalty is $850 per adult and $425 per child, up to a cap of a percentage of household income.
- Massachusetts: The first state to implement an individual mandate. Penalties vary by income and age, but can reach up to 50% of the lowest-cost premium for a plan meeting minimum creditable coverage.
- New Jersey: Penalties mirror the former federal structure. For 2023, the flat penalty is $835 per adult and $417.50 per child, or a percentage of income, whichever is greater.
- Rhode Island: Effective 2020, penalties are similar to the federal model, with a flat fee or percentage of income.
- Vermont: A penalty applies only if you have access to affordable coverage but don’t enroll. The penalty is up to $10 per week.
- District of Columbia: Penalties range from $750 to $2,000 per year depending on income, with exemptions for financial hardship.
When Do Employees Face ACA Penalties?
For employees, the only direct ACA penalty at the federal level is gone. However, employees may face indirect penalties if an employer doesn’t comply. For example, if an employer fails to report coverage accurately on Form 1095-C, employees may face processing delays or errors in their tax returns. Additionally, if an employee receives a premium tax credit they weren’t entitled to due to employer non-compliance, the IRS may seek repayment.
How WellthCare Helps Employers Avoid Penalties
Employers today face rising compliance burdens, especially as the ACA’s reporting requirements remain strict. The key to avoiding penalties is ensuring all full-time employees have access to affordable, minimum value coverage. WellthCare offers a unique solution: it works alongside your existing health plan as a zero-risk add-on, ensuring employees have $0-co-pay preventive care and automatic wealth-building incentives. This lowers claims and keeps employees healthier, making it easier to meet ACA affordability and minimum value requirements. For larger employers ready to move beyond BUCA, WellthCare Complete™ provides a fully aligned, self-funded alternative that saves 30-45% while maintaining compliance. By using the WellthCare Readiness Index™, employers get data-driven proof of when switching reduces costs and risk-before penalties ever become an issue.
Final Takeaway: No Federal Penalty for Individuals, But Employers Must Stay Vigilant
The biggest takeaway: the individual mandate penalty at the federal level is gone, but employers with 50+ employees must still offer compliant coverage or face significant fines per employee per year. State-level penalties also remain in several jurisdictions. For employers, the smartest approach is to use tools like WellthCare’s ecosystem to drive down claim costs and improve employee health, making ACA compliance more affordable and sustainable. As health and wealth become increasingly linked, the companies that embrace preventive, wealth-building benefits will avoid penalties-and build a stronger, more loyal workforce.