What is Part B of the Employer Mandate?

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.

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