Employee Benefits Compliance, Employer Mandate, Penalties

Affordable Care Act Applicable Large Employer Penalties Decrease for 2025 if Failing to Provide Sufficient Health Coverage

The IRS updated its penalties for the Affordable Care Act (ACA) employer shared responsibility (commonly referred to as “pay or play”) rules with decreased penalty amounts for 2025. For 2025, the adjusted 4980H(a) penalty decreased $70 from 2024 to $2,900 per full-time employee (minus the first 30 employees) where failing to offer minimum essential coverage to 95% of full-time employees and their dependent children. The adjusted 4980H(b) penalty decreased $110 from 2024 to $4,350 per full-time employee that receives subsidized coverage in the Exchange Marketplace if offering coverage that is unaffordable or does not have minimum value.

Pay or Play Penalty Calculations

Under the pay or play rules, an Applicable Large Employer (ALE) is only liable for a penalty if at least one full-time employee receives a subsidy for Exchange coverage. Employees who are offered affordable, Minimum Value (MV) coverage are generally not eligible for these Exchange subsidies.

Depending on the circumstances, one of two penalties may apply under the pay or play rules—the 4980H(a) penalty or the 4980H(b) penalty.

  • Under Section 4980H(a), an ALE will be subject to a penalty if it does not offer coverage to “substantially all” (generally, at least 95%) of its full-time employees (and dependents) and any one of its full-time employees receives a subsidy toward his or her Exchange plan. The monthly penalty assessed on ALEs that do not offer coverage to substantially all full-time employees and their dependents is equal to the ALE’s number of full-time employees (minus 30) multiplied by 1/12 of $2,000 (as adjusted, as noted above), for any applicable month.
  • Under Section 4980H(b), ALEs that offer coverage to substantially all full-time employees (and dependents) may still be subject to a penalty if at least one full-time employee obtains a subsidy through an Exchange because the ALE did not offer coverage to all full-time employees, or the ALE’s coverage is unaffordable or does not provide MV. The monthly penalty assessed on an ALE for each full-time employee who receives a subsidy is 1/12 of $3,000 (as adjusted) for any applicable month. However, the total penalty for an ALE is limited to the 4980H(a) penalty amount.

Conclusion

Large employers (50+ full-time and fill-time equivalent employees) should ensure they are working with a Leavitt Group trusted advisor to ensure full compliance with the ACA rules applicable to them. For more details on the ACA pay or play employer mandate rules, see the prior Leavitt Group article.