Employer Mandate vs. Individual Mandate

Over the past couple months I have been privileged to travel around Oregon to discuss the Affordable Care Act.   During the question section of my presentation I have been asked, ‘If the employer is required to pay a $2000 tax/penalty is it possible that the employee will have to pay a separate penalty as well?’  The short answer is yes, it is possible for both the employer as well as an employee to pay a penalty. Both the employer mandate penalty and individual mandate penalty are independent of one another.

The employer mandate is levied by the Internal Revenue Service against large employers (50 or more full time employees and equivalents) that do not provide health care coverage.  The first 30 full time employees are exempt from the penalty but any full time employees after that mark will be taxed a rate of $2000.00 per employee per year. The individual mandate, like the employer mandate, is a tax that comes into force in 2014.  In 2014 the minimum penalty for an individual that fails to have health care insurance is $95.00 or 1% of income, whichever is greater.  Those numbers go up to $325.00 or 2% of income in 2015, then $695.00 or 2.5% of income in 2016.  Afterwards the minimum yearly penalty is linked to an inflation index. The penalty on the individual mandate cannot exceed that of the lowest cost health care plan from that state’s health insurance exchange.

I should note that like nearly every other tax there are exceptions to the employer mandate as well as the individual mandate. For example, there is an exemption under the individual mandate for Americans residing outside the United States. 

Arin J. Carmack

References:

http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act

http://www.fas.org/sgp/crs/misc/R41331.pdf