2021 ACA Pay or Play Penalties Increase

On August 19, 2020, the IRS updated its Pay or Play Frequently Asked Questions to include the annual adjusted penalty amounts for the 2021 calendar year.

When the Affordable Care Act was first implemented, there were two penalties for the Pay or Play, 4980H(a) penalty and the 4980H(b) penalty for Applicable Large Employers, also referred to as an “ALE.”

  • The Section 4980H(a) penalty can apply when an ALE, does not offer group health insurance to “substantially all” full-time employees (and dependents). The penalty is calculated as ALE number of full-time employees (minus 30) x $2,000 (as adjusted).


  • The Section 4980H(b) penalty can apply when an ALE does not offer coverage to all full-time employees or the ALE’s coverage is unaffordable or does not provide minimum value, and the employee receives an Exchange subsidy. The penalty is calculated as $3,000 (as adjusted) x the number of ALE’s full-time employees who receive an Exchange subsidy.


  • For 2021, the adjusted 4980H(a) $2,000 penalty amount is $2,700.
  • For 2021, the adjusted 4980H(b) $3,000 penalty amount is $4,060.


Employers with 50 or more full time equivalent employees, also known as Applicable Large Employers (“ALE”), should keep these penalty amounts in mind when reviewing benefit eligibility and employer contributions for 2021 calendar year to avoid penalties.


For more information, contact MNJ Insurance Solutions at (714) 716-4303.


This content is provided for informational purposes only.  While we have attempted to provide current, accurate and clearly expressed information, this information is provided “as is” and MNJ Insurance Solutions makes no representations or warranties regarding its accuracy  and completeness.  The information provided should not be construed as legal or tax advice or as a recommendation of any kind.  External users should seek professional advice form their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.