If you're navigating the complexities of the Affordable Care Act (ACA) Employer Mandate, understanding what is often called the “Part B” penalty is crucial to ensure compliance and avoid significant penalties. While “Part B of the Employer Mandate” isn’t an official term used by the ACA or the IRS, it’s a widely used shorthand in HR and compliance circles. It refers to the second component of the Employer Shared Responsibility Provision under IRC Section 4980H(b), which focuses on whether the coverage offered by Applicable Large Employers (ALEs) is both affordable and meets minimum value standards.

In this article, we’ll break down what “Part B” really means, how penalties are triggered, and how to safeguard your business in 2025 with affordable, ACA-compliant coverage.

What is the ACA Employer Mandate?

The ACA’s Employer Shared Responsibility Provision, commonly known as the Employer Mandate, requires businesses with 50 or more full-time employees or full-time equivalents (FTEs), referred to as Applicable Large Employers (ALEs), to offer qualifying health coverage to their full-time workforce and their dependents.

When offering health coverage to employees, ALEs must meet specific standards set by the ACA or face substantial non-compliance penalties. To fully comply with this mandate, the coverage offered must meet two main criteria:

• Must offer Minimum Essential Coverage (MEC) to at least 95% of their full-time employees and their dependents.
• Must be affordable and provide minimum value based on IRS standards.

Failure to meet these standards may result in one of two penalty types, commonly referred to in the industry as “Part A” and “Part B” penalties:

• 4980H(a) Penalty (Often Called “Part A”):
• Applies when an ALE fails to offer MEC to at least 95% of its full-time employees and one or more of those employees receives a Premium Tax Credit (PTC) through the Marketplace.
• 4980H(b) Penalty (Often Called “Part B”):
• Applies when an ALE does offer coverage, but it is either unaffordable or fails to provide minimum value, and at least one full-time employee receives a PTC.

Note: While “Part A” and “Part B” are not official terms used in the ACA statute, they are widely used to distinguish the two separate penalty pathways under the law.

What is the Part B Penalty?

(New to ACA compliance? Check out our companion article: What Is the Part A Penalty? It breaks down what happens when coverage isn’t offered to at least 95% of your full-time workforce.)

As we've mentioned, the Part B penalty technically refers to Section 4980H(b) of the Internal Revenue Code. This section outlines the penalty that applies when the health coverage employers offer to their full-time staff doesn’t meet the ACA’s affordability and minimum value standards.

In other words: simply offering coverage isn’t enough. To remain fully compliant, the plan you offer must also be:

• Affordable, as defined by IRS thresholds or safe harbor methods, and
• Provide minimum value, meaning it covers at least 60% of expected medical expenses for a standard population.

When Is the Part B Penalty Triggered?

The Part B penalty is triggered when:

• An ALE offers unaffordable health coverage or does not provide minimum value.

And

• At least one full-time employee receives a Premium Tax Credit (PTC) to buy coverage through the Marketplace.

How Much Could the Part B Penalty Cost Your Business?

For 2025, the IRS has set the Part B penalty at $362.50 per month, or $4,350 per year, per full-time employee who receives a PTC due to inadequate coverage.

Example: If 5 full-time employees receive PTCs because your plan offering was unaffordable or lacked minimum value:

5 employees × $4,350 = $21,750 annual penalty

Unlike the Part A penalty, which applies to your total full-time workforce if you fail to offer coverage, the Part B penalty is applied individually. However, the costs can still add up quickly if multiple employees qualify for subsidies.

How the ACA Defines Affordability

The ACA defines employer-sponsored health coverage as affordable if the employee’s share of the monthly premium for the lowest-cost, self-only plan does not exceed a specific percentage of their household income. The affordability threshold is adjusted annually to account for various economic factors. For 2025, the IRS affordability threshold is 9.02%.

Since employers typically do not have access to their employees’ total household income, the IRS permits alternative safe harbor methods to reasonably estimate affordability. These safe harbors offer employers a reliable way to determine whether their health plan meets ACA affordability standards, without needing sensitive financial data from employees.

IRS-approved safe harbor methods include:

• W-2 Safe Harbor:
• Affordability is determined based on the employee’s wages reported in Box 1 of their W-2 form for the current calendar year. This method is straightforward but may be impacted by pre-tax deductions that reduce Box 1 income.
• Rate of Pay Safe Harbor:
• Uses the employee’s hourly rate multiplied by 130 hours per month (or their monthly salary if salaried) to calculate a presumed monthly income. This is often preferred for hourly workers with consistent schedules.
• Federal Poverty Line (FPL) Safe Harbor:
• Sets a fixed maximum employee contribution based on the federal poverty level for a single individual. This method is the simplest to administer and provides a guaranteed affordability threshold, though it may result in the lowest allowable employee premium.

It's important to note that affordability is evaluated on a monthly basis and applies only to the cost of self-only coverage, not dependent or family coverage.

How the ACA Defines Minimum Value

To meet the ACA’s minimum value standard, an employer-sponsored health plan must cover at least 60% of the total allowed cost of expected medical services. In simple terms, the plan should pay about 60% of average healthcare expenses for a typical group of employees, while the employee covers the remaining 40% through deductibles, copays, or coinsurance.

Meeting the 60% cost threshold is only part of the equation. For a plan to truly meet the minimum value standard, it must also include essential benefits, such as:

• Inpatient hospital care and,
• Physician services.

These are the core building blocks of meaningful coverage, and without them, a plan may not provide the protection employees need when it matters most.

Some health plans, often called “skinny plans, " exclude key medical services like hospital stays or regular physician visits. While these plans might technically satisfy the Minimum Essential Coverage (MEC) requirement under Part A of the Employer Mandate, they fall short of the ACA’s minimum value standards under Part B.

Key Takeaways: Understanding the ACA Part B Penalty

• To avoid Part B penalties, your health plan must:
  • Cover at least 60% of the total allowed cost of expected medical services.
  • Ensure that the employee’s share of the monthly premium for the lowest-cost, self-only plan doesn’t exceed the IRS affordability threshold (9.02% for 2025)
• Part B Penalty Applies when:
  • An ALE offers inadequate coverage and
  • A full-time employee receives a Premium Tax Credit (PTC) through the Marketplace.
• 2025 Penalty Costs = $362.50/month or $4,350/year per affected employee.
• IRS-approved Affordability Safe Harbors include:
• • W-2 Safe Harbor
• • Rate of Pay Safe Harbor
• • Federal Poverty Line (FPL) Safe Harbor
• MEC plans may satisfy Part A but fail to meet affordability and minimum value requirements under Part B, leading to costly penalties.

Common ACA Compliance Pitfalls and How to Avoid Them

To stay ACA compliant, employer-sponsored coverage must meet federal standards, be well-documented, and adapt to changing regulations. Even employers with the best intentions can face penalties if they don’t have a clear, proactive compliance strategy in place.

To help you stay on track, here are some of the most common pitfalls employers encounter when trying to meet Part B requirements, along with practical tips to avoid them.

1. Offering Coverage That Doesn’t Meet Minimum Value

It’s a common misconception that MEC plans are enough to fully satisfy ACA requirements. While MEC plans protect from the Part A penalty by covering basic preventive services, MEC plans alone do not typically meet minimum value standards. That’s why many employers pair MEC with a Minimum Value Plan (MVP).

Why it matters:

To meet the ACA’s minimum value standard, a plan must generally cover at least 60% of total allowed costs and include key services like inpatient hospital and physician care—elements the IRS uses in its minimum value calculator. While not all Essential Health Benefits (EHBs) are mandated for large group plans, omitting these core services risks noncompliance under the minimum value rule. Also, it only takes one full-time employee receiving a Premium Tax Credit (PTC) through the Marketplace to trigger the Part B penalty.

How to avoid it:

When designing your benefits strategy, work with a benefits administrator or ACA compliance partner who can help you identify plans that combine MEC + MVP coverage. This approach ensures you’re offering a plan that not only meets ACA requirements but also aligns with your budget and workforce needs.

Your plan should:

• Pass the IRS minimum value test (covering at least 60% of expected costs)
• Include essential inpatient and outpatient care
• Be tailored to meet the needs of your employee population—especially if you're managing high turnover or variable hours

2. Misapplying Safe Harbor Methods

The IRS offers three safe harbor methods to simplify affordability calculations, but they must be used correctly and consistently. Employers sometimes apply different methods arbitrarily or miscalculate key figures, resulting in compliance gaps.

Why it matters:

Inconsistent or incorrect use of safe harbors can unintentionally make your coverage unaffordable by ACA standards.

How to avoid it:

Apply the same safe harbor method consistently across defined employee groups (e.g., hourly vs. salaried workers). Document your process thoroughly and review your calculations to ensure they align with current IRS rules. To reduce complexity and minimize errors, consider working with a benefits administrator or ACA compliance partner who can help apply the right safe harbor method and verify calculations across your team.

3. Failing to Update Affordability Thresholds Annually

The ACA affordability percentage is adjusted each year to reflect economic changes. Relying on outdated figures from previous years can result in a plan that no longer meets current affordability standards.

Why it matters:

Even if your plan was compliant last year, it might not meet this year’s threshold, putting your organization at risk for penalties despite prior compliance.

How to avoid it:

Review the annual IRS affordability percentage (9.02% for 2025) and adjust your employee contribution strategy as needed. If you're using a safe harbor method, be sure to recalculate based on the latest thresholds, and monitor changes in employee hours or wages that could impact affordability. Working with a benefits administrator or compliance partner can ensure you stay ahead of updates and maintain compliance without burdening your internal HR or payroll teams.

4. Inadequate Recordkeeping and Reporting

ACA compliance requires accurate and timely reporting to the IRS. Employers must ensure that Forms 1094-C and 1095-C) are completed correctly and submitted by the required deadlines. Mistakes or missed deadlines can result in separate reporting penalties, even if your health plan fully meets ACA standards. In other words, you could still face fines—not for your coverage—but for how it was documented and reported.

Why it matters:

Errors on Forms 1094-C or 1095-C, missing documentation, or late submissions can lead to IRS filing penalties, even if your coverage is otherwise ACA-compliant. These penalties are separate from the Employer Mandate penalties and can add up quickly. Clear, well-organized records are the best defense against potential IRS audits or compliance reviews.

How to avoid it:

• Track everything throughout the year: Document when coverage was offered, to whom, and what plan was provided, including affordability calculations and safe harbor method used.
• Organize records by employee: Maintain a centralized, secure system that logs coverage offers, election forms, and declinations for each full-time employee.
• Review IRS forms carefully: Double-check coding on Forms 1094-C and 1095-C for accuracy—especially offer codes, employee status, and affordability designations.
• Meet all deadlines: Stay ahead of IRS filing deadlines to avoid late penalties. Add calendar reminders or automate alerts if needed.
• Retain records for audit protection: Keep ACA documentation for at least three years, as required by the IRS, in case of future audits or inquiries.
• Consider working with a vendor or compliance advisor: Work with a professional who understands the complexities of ACA reporting and can validate your data before submission.

Why Some Employers Skip Minimum Value Coverage

In industries like home healthcare, childcare, or warehousing, some employers choose to offer MEC-only plans instead of pairing them with a Minimum Value Plan (MVP). This decision often comes down to a cost-versus-risk assessment, especially when:

• The company’s budget doesn’t allow for the added cost of an MVP
• Employees are unlikely to seek coverage through the Marketplace
• The workforce is generally ineligible for Premium Tax Credits (PTCs) due to income level, Medicaid eligibility, or household insurance

Since the Part B penalty is only triggered when a full-time employee receives a PTC, the perceived risk may be low, particularly when those employees have other sources of coverage.

For example, a homecare agency with only 10 full-time employees, but a total of 52 full-time equivalent (FTE) employees would be classified as an Applicable Large Employer (ALE) under the ACA:

• 10 full-time employees = 10 FTEs (since full-time = 30+ hours/week)
• 50 part-time employees × 25 hours/week = 5,000 hours/month ÷ 120 = ~42 FTEs
• Total = 52 FTEs

While the employer would be required to offer MEC coverage to avoid the Part A penalty, only the 10 full-time employees could potentially trigger a Part B penalty if they received subsidies through the Marketplace. If none of those full-time employees are eligible for or interested in subsidies, for example, if they’re covered by Medicaid or a spouse’s plan, the employer may view MEC-only coverage as a low-risk, cost-effective option.

That said, relying solely on MEC coverage isn’t without risk. If all ten of the full-time employees qualified for and received a PTC through the Marketplace, that would trigger the Part B penalty and could end up costing the employer $43,500.

Workforce changes, shifts in household income, or tighter enforcement can quickly increase your exposure. And beyond compliance, offering minimal coverage can negatively impact retention, morale, and productivity, leading to higher recruitment, onboarding, and operational costs over time.

If you're weighing whether the cost savings outweigh the compliance and workforce risks, it's essential to work with a trusted benefits partner. They can help you monitor employee eligibility trends, assess penalty exposure, and determine the right time to introduce an MVP, ensuring your strategy evolves with your workforce.

Build a Better ACA Compliance Strategy

Navigating the ACA Employer Mandate takes a straightforward, compliant strategy tailored to your workforce and backed by accurate documentation, ongoing monitoring, and expert support.

Vitable simplifies ACA compliance while helping you provide health benefits that are meaningful, affordable, and aligned with your team’s values.

Tailored, ACA-Compliant Plan Design

Vitable offers a range of flexible, ACA-compliant plan options that meet MEC + minimum value standards and support employers in providing affordable, comprehensive care. We work with you to design a plan that balances compliance with the real needs of your workforce, especially if you’re managing variable schedules or tight margins.

We conduct  Minimum Value assessments to verify that your plan meets the 60% coverage threshold and includes essential health services like inpatient and physician care, so you can offer benefits with confidence.

Safe Harbor Strategy and Affordability Modeling

Most employers rely on safe harbor methods to estimate affordability, but misapplying them is one of the most common (and costly) compliance mistakes. Vitable helps you select the appropriate  IRS-approved safe harbor and apply it consistently across clearly defined employee groups.

We can also run affordability contribution modeling using your workforce data to ensure your employee premiums fall within current IRS limits. This allows you to stay compliant without overburdening your payroll or HR systems.

Ongoing Monitoring and Annual Compliance Updates

ACA thresholds don’t stay static and neither does your workforce. Vitable keeps track of ACA compliance updates and helps you recalibrate contributions, review plan eligibility, and make annual adjustments to ensure continued compliance. We can also monitor your plan’s structure year-round, flag potential risks early, and provide guidance on how to address them, so you’re never caught off guard.

ACA Compliant Benefits - Get a quote

Centralized Reporting and Documentation Support

Accurate reporting is a cornerstone of ACA compliance. Vitable helps you maintain clear, organized records of all coverage offers, safe harbor applications, affordability calculations, and employee responses. When it’s time to file Forms 1094-C and 1095-C, we support your team with pre-populated compliance data, validation reviews, and seamless coordination with your payroll provider or filing system. Whether you're handling ACA reporting internally or through a vendor, we ensure your records are audit-ready and your submissions are accurate and timely.

Personalized Compliance Support

Compliance can sometimes feel complicated, but you don’t have to manage it alone. Vitable’s team provides personal, responsive support every step of the way. From compliance questions to strategy adjustments, we’re here to help you build a benefits solution that protects your business and delivers lasting value to your employees.

Meaningful, Everyday Coverage Through Direct Primary Care

All Vitable plans come standard with our Direct Primary Care (DPC) membership, offering your employees convenient access to high-quality care they’ll actually use. Vitable’s primary care includes unlimited virtual visits, access to 1,000+ free prescriptions and labs, mental health support, and more—all for $0 out-of-pocket costs to employees. No copays. No deductibles. Just care that works.

Ready to Take the Guesswork Out of ACA Compliance?

Whether you want to improve your current health plan or build a new one from the ground up, Vitable is here to help. We combine ACA-compliant coverage with hands-on support to help you stay compliant, avoid penalties, and offer benefits your team will use and value.

Get a personalized quote or talk to a benefits advisor by filling out the form below to see how Vitable can support your business.

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