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e-Alert: ACA “Play-or-Pay” Penalties Increased for 2021

By October 13, 2020October 15th, 2020No Comments


The Affordable Care Act (ACA) requires applicable large employers (ALEs) to offer affordable, minimum value health coverage to their full-time employees or pay a penalty. This employer mandate provision is commonly referred to as the “employer shared responsibility” or “play-or-pay” rules. An ALE is an employer with 50 or more full-time employees, or an equivalent combination of full-time and part-time employees.


On August 19, 2020, the Internal Revenue Service (IRS) updated its frequently asked questions (FAQs) on the “pay or play” penalties, which included increased penalty amounts for the 2021 calendar year.

The new penalties for 2021 are:

  • The adjusted $2,000 amount is increased to $2,700
  • The adjusted $3,000 amount is increased to $4,060

Play-or-Pay Penalties
There are two separate penalties that can apply under the employer shared responsibility rules:

  • The Section 4980H(a) penalty can apply when an ALE does not offer coverage to “substantially all” full-time employees (and dependents). The annual penalty is calculated as the ALE’s number of full-time employees (minus 30) x $2,000 (adjusted to $2,700 for 2021).
  • The Section 4980H(b) penalty can apply when an ALE does not offer coverage to all full-time employees or offers coverage that is either unaffordable or does not provide minimum value. The annual penalty is calculated as $3,000 (adjusted to $4,700 for 2021) x the number of the ALE’s full-time employees who receive an exchange cost-sharing subsidy.

After 2014, the applicable per-employee dollar amounts of $2,000 and $3,000 are increased annually based on the premium adjustment percentage for the year.

Employers Next Steps

  • Be aware that you may need to lower your employee contributions for 2021 to meet the adjusted percentage.
  • HRK recognizes the complexity of this information and we will be happy to guide our clients through it. Please contact our Benefits Team if you have any questions.

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This content is provided with the understanding that HR Knowledge is not rendering legal advice. While every effort is made to provide current information, the law changes regularly and laws may vary depending on the state or municipality. The material is made available for informational purposes only and is not a substitute for legal advice or your professional judgment. You should review applicable laws in your jurisdiction and consult experienced counsel for legal advice. If you have any questions regarding this content, please contact HR Knowledge at 508.339.1300 or email us.