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Employer Sponsored Health Coverage Explained

Written by a TurboTax Expert • Reviewed by a TurboTax CPAUpdated for Tax Year 2024 • October 16, 2024 1:07 AM
OVERVIEW

The Affordable Care Act, also known as Obamacare, is simpler than some people may give it credit for. Employers with 50 full-time employees or more are obligated to sponsor plans for their workers to help them meet this requirement.

 

Key Takeaways

  • According to the Affordable Care Act, the premiums you pay to an employer-sponsored health plan for your own coverage can't exceed 8.39% of your 2024 household income.
  • If you add coverage for other members of your family, the premiums may exceed 8.39% of your household income.
  • If your share of the health insurance premiums through your employer is more than 8.39% of your 2024 income, you can get health insurance through the Health Insurance Marketplace.
  • If the premiums for your employer-sponsored health insurance are equal to or less than 8.39% of your 2024 income, you can’t claim the premium tax credit if you buy through the Marketplace instead.

What is employer-sponsored coverage?

The first step in understanding employer-sponsored health coverage is figuring out whether you have it. Technically, a health plan can be offered by your employer, available within your state or sponsored by the government.

If you purchase insurance privately or through the Health Insurance Marketplace, this isn’t employer-sponsored coverage. But if you’re covered by a health plan provided through your job, it’s most likely employer-sponsored. Check with human resources or your boss to be sure.

Premiums must be affordable

“The new health care law says that your contributions to a health plan sponsored by your employer must be affordable for you,” says Chip Capelli, an accountant with offices in Philadelphia and Provincetown, Massachusetts. Your definition of affordable might be different from your employer’s so the law includes specific guidelines for 2024:

  • Premiums can’t exceed 8.39% of your household’s income after taking your employer’s contributions into the equation.
  • Technically, this means that if both you and your spouse work, the 8.39% applies to your combined incomes.

But as a practical matter, many employers just go by the income reported on your W-2, because they have no way of identifying exactly what your household’s income might be.

What does affordable coverage mean to you?

If your share of the health insurance premiums through your employer is more than 8.39% of your 2024 income, you can get health insurance through the Health Insurance Marketplace, the website where you can get coverage when a more affordable plan isn’t available to you. When this is the case, you are likely eligible for the Premium Tax Credit to help pay the cost.

But if your employer offers health insurance that is equal to or less than 8.39% of your 2024 income, you can’t claim the premium tax credit if you buy through the Marketplace instead, a choice you might make if purchasing a policy there would be less expensive or offers better coverage than your employer-sponsored options.

TurboTax Tip:

If you decline employer-sponsored coverage, you can’t take advantage of the Premium Tax Credit if you buy in the Marketplace instead, no matter what your reasons.

There’s a family affordability glitch

Some taxpayers fall into what’s being called a “family affordability glitch.” The affordability rule applies only to coverage for you, not for your dependents. So, when you add on coverage for your entire family, the premiums may exceed 8.39% of your 2024 income.

If you decline employer-sponsored coverage, you’ll still be barred from taking advantage of the Premium Tax Credit if you buy in the Marketplace instead, no matter what your reasons.

Non-complying Applicable Large Employers (ALEs) may pay fines

It’s likely in your employer’s best financial interests to offer you coverage you can afford. “The government encourages employers to offer affordable health care coverage by imposing some stiff monetary fines when they don’t,” says Capelli.

For 2024, if even one of a company’s workers receives a premium tax credit through the Marketplace because the company’s health insurance plans don’t meet the law’s standard for affordability, the employer must pay an annualized penalty equal to $4,460 multiplied by the number of employees who receive the premium tax credit.

  • If 10 of them receive a premium tax credit, this amounts to a $44,600 fine (10 x 4,460)

But this isn’t as steep as the fine a company faces if it employs more than 50 workers and offers no employer-sponsored health coverage at all.

  • The fine in 2024 is $2,970 per employee, less 30 employees.
  • For example, if the company employees 75 full-time workers, the fine would be:
    o 75 – 30 = 45 employees
    o 45 x $2,970 = $133,650 fine

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Related Articles
More in Health Care
Key Dates for Affordable Care Act (ACA) Open EnrollmentThe Most Important Tax Forms for Applicable Large Employers (ALEs)What Is Form 8885: Health Coverage Tax CreditWhat Is the Individual Shared Responsibility Provision?Health Insurance Assistance for the Unemployed

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  • Maximum Refund Guarantee / Maximum Tax Savings Guarantee - or Your Money Back - Individual Returns: If you get a larger refund or smaller tax due from another tax preparation method by filing an amended return, we'll refund the applicable TurboTax federal and/or state software license purchase price you paid. This guarantee is good for the lifetime of your personal, individual tax return, which Intuit defines as seven years from the date you filed it with TurboTax Desktop. Excludes TurboTax Desktop Business returns. Additional terms and limitations apply. See License Agreement for details.

  • Audit Support Guarantee - Individual Returns: If you receive an audit letter from the IRS or State Department of Revenue based on your 2024 TurboTax individual tax return, we will provide one-on-one question-and-answer support with a tax professional, if requested through our Audit Support Center, for audited individual returns filed with TurboTax Desktop for the current 2024 tax year and, for individual, non-business returns, for the past two tax years (2022, 2023). Audit support is informational only. We will not represent you before the IRS or state tax authority or provide legal advice. If we are not able to connect you to one of our tax professionals, we will refund the applicable TurboTax federal and/or state license purchase price you paid. This guarantee is good for the lifetime of your personal, individual tax return, which Intuit defines as seven years from the date you filed it with TurboTax Desktop. Excludes TurboTax Desktop Business returns. Additional terms and limitations apply. See License Agreement  for details.

  • Satisfaction Guarantee/ 60-Day Money Back Guarantee: If you're not completely satisfied with TurboTax Desktop software, go to refundrequest.intuit.com within 60 days of purchase and follow the process listed to submit a refund request. You must return this product using your license code or order number and dated receipt. Desktop add-on products and services purchased are non-refundable.

TurboTax Desktop Business Returns:

  • 100% Accurate Calculations Guarantee - Business Returns: If you pay an IRS or state penalty or interest because of a TurboTax calculation error, we'll pay you the penalty and interest. Excludes payment plans. You are responsible for paying any additional tax liability you may owe. Additional terms and limitations apply. See License Agreement  for details.

  • Maximum Tax Savings Guarantee - Business Returns: If you get a smaller tax due (or larger business tax refund) from another tax preparation method using the same data, TurboTax will refund the applicable TurboTax Business Desktop license purchase price you paid. Additional terms and limitations apply. See License Agreement  for details.

  • Satisfaction Guarantee/ 60-Day Money Back Guarantee: If you're not completely satisfied with TurboTax Desktop software, go to refundrequest.intuit.com within 60 days of purchase and follow the process listed to submit a refund request. You must return this product using your license code or order number and dated receipt. Desktop add-on products and services purchased are non-refundable.

TURBOTAX DESKTOP DISCLAIMERS

  • Installation Requirements: Product download, installation and activation requires an Intuit Account and internet connection. Product limited to one account per license code. You must accept the TurboTax License Agreement to use this product. Not for use by paid preparers.

  • TurboTax Desktop Products: Price includes tax preparation and printing of federal tax returns and free federal e-file of up to 5 federal tax returns. Additional fees apply for e-filing state returns. E-file fees may not apply in certain states, check here for details. Savings and price comparison based on anticipated price increase. Software updates and optional online features require internet connection. Desktop add-on products and services purchased are non-refundable.

  • Fastest Refund Possible: Get your tax refund from the IRS as fast as possible by e-filing and choosing to receive your refund by direct deposit. Tax refund time frames will vary. The IRS issues more than 9 out of 10 refunds in less than 21 days.

  • Average Refund Amount: $3,207 is the average refund amount American taxpayers received in the 2024 filing season based upon IRS data as of February 16, 2024 and may not reflect actual refund amount received.

  • TurboTax Technical Support: Customer service and technical support hours and options vary by time of year.

  • Deduct From Your Federal Refund: Individual taxes only. Subject to eligibility requirements. Additional terms apply. A $40 Refund Processing Service fee applies to this payment. method. Prices are subject to change without notice.

  • Data Import: Imports financial data from participating companies; Requires Intuit Account. Quicken and QuickBooks import not available with TurboTax installed on a Mac. Imports from Quicken (2022 and higher) and QuickBooks Desktop (2023 and higher); both Windows only. Quicken import not available for TurboTax Desktop Business. Quicken products provided by Quicken Inc., Quicken import subject to change.

  • Live Tax Advice: Access to tax experts to obtain answers to tax questions and to assist with tax year 2024 return(s) prepared with TurboTax Desktop software. Additional fees apply. Must be purchased and used by October 31, 2025. Excludes TurboTax Desktop Business. See License Agreement for details.

  • Audit Defense: Audit Defense is a third-party add-on service provided, for a fee, by TaxResources, Inc., dba Tax Audit. See Membership Agreements at https://turbotax.intuit.com/corp/softwarelicense/ for service terms and conditions.

All features, services, support, prices, offers, terms and conditions are subject to change without notice.

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