Defining and Calculating ESRP- It Doesn’t Have to be Difficult

As an applicable large employer, maintaining your Affordable Care Act (ACA)  compliance is no easy task. There are many facets to ACA reporting and compliance, one of the most basic requirements is providing your employees with affordable healthcare coverage. 

Failure to do so will land you an ACA penalty also known as the ESRP. The following information will understand the Employer Shared Responsibility Payment (ESRP) and calculate any potential ACA penalties you may face. 

Defining ESRP

The Employee Shared Responsibility Payment is basically a penalty that the IRS levies against Large Applicable Employers (ALE), those employers with 50 or more full-time/ full-time equivalent employees. 

When the ACA was enacted, the IRS wrote sections 4980H(a) and 4980H(b), these sections of the tax code describe the grounds for which the IRS can levy an ESRP against mandated ACA reporters. 

4980H(a)

This penalty is officially called the Employer Shared Responsibility Payment for Failure to Offer Coverage Minimum Essential Coverage (MEC). Yes, that is extremely wordy, so let’s break it down. 

To avoid this penalty, employers must provide the minimum coverage acceptable under the ACA to at least 95% of their full-time employees and their dependents for each month of the year that they were eligible for coverage.

If any full-time employee is able to find higher quality coverage on the Healthcare Marketplace and receives a premium tax credit from the government, their employer will be penalized. 

4980H(b)

This penalty is officially the Employer Shared Responsibility Payment for Failure to Offer Coverage the Meets Affordability. This will be levied against ALEs that provide health insurance coverage that is unaffordable by the IRS standards. 

To avoid this penalty, employers must offer the minimum value of coverage to their employees, this must be the equivalent of a bronze plan on the Marketplace. To be deemed affordable, the employees’ premium can’t exceed 9.78% of their gross household income. 

Again, if any employer is able to find coverage on the Healthcare Marketplace that is of better quality or cost, and they are able to qualify for a premium tax credit from the government, their employer will be penalized. 

How is the ESRP Calculated? 

The ESRP rate under 4890H(a) is $2,570 for the tax year 2020. ALEs will not be penalized for the first 30 employees. However, for every employee with the exception of the first 30, the employer will be penalized $2500 for any employees that didn’t receive a proper offer of coverage or were able to qualify for a premium tax credit. 

The ESRP rate under 4980H(b) is $3,860 for tax year 2020. This rate will be charged for each employee that qualified for and received a premium tax credit on the Healthcare Marketplace. 

There is an Easier Way!

Calculating your potential Employer Shared Responsibility Payment can be tricky and time consuming. That is why the team at ACAwise created a simple and secure solution. 

We created our own ACA Penalty Calculator to save you the time and stress of estimating your potential penalties. 

Try it out today! Simply enter your information using our secure Penalty Calculator, and get results within minutes. 

Are you struggling with ACA penalties? Don’t go it alone! The team at ACAwise can guide you through the process of dealing with your penalty assessment. The sooner you act the better, feel free to reach out to a member of our team today.