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ACA

IRS Reduces ACA Penalties for 2025

The Baldwin Group
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Updated: April 24, 2024
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2 minute read

On February 12, 2024, the IRS released Revenue Procedure 2024-14, which updated penalty amounts for 2025 related to the employer-shared responsibility (play or pay) rules under the Affordable Care Act (ACA). For calendar year 2025, the adjusted $2,000 penalty amount is $2,900, and the adjusted $3,000 penalty amount is $4,350. This is a decrease from the penalty amounts for the 2024 calendar year, which are $2,970, and $4,460, respectively.

Employer Action Items

To the extent an employee applies for and is awarded a premium subsidy from either national or state-run insurance Marketplaces, an Applicable Large Employer (ALE) may be assessed a penalty should it not offer its employees affordable coverage with minimum value (MV) to at least 95% of its full-time employees (as those terms are defined in the ACA). ALEs should, therefore, review their benefit packages and contribution strategies for the coming year to minimize the potential for a penalty assessment.

Summary

Under the play or pay rules, an ALE is only liable for a penalty if at least one full-time employee receives a subsidy for coverage obtained through the Marketplace. Employees who are offered affordable, MV coverage are generally not eligible for these subsidies. Depending on the circumstances, one of two penalties may apply: the penalty under Code Section 4980H(a) (Part A or $2,000 Penalty) or the penalty under Code Section 4980H(b) (Part B or $3,000 Penalty).

  • Part A Penalty: Under Code Section 4980H(a), an ALE will be subject to a penalty if it does not offer minimum essential 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 a health plan purchased in the Marketplace. The monthly penalty assessed is equal to the ALE’s number of full-time employees (minus 30) multiplied by 1/12 of $2,000 (as adjusted) for any applicable month.
  • Part B Penalty: Under Code Section 4980H(b), ALEs that offer minimum essential 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 the Marketplace because the ALE did not offer coverage that is affordable or did not provide minimum value. 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.

The IRS provides a variety of resources on the play-or-pay provisions that provide more information on calculating the penalty. Employers can use the following IRS web pages for more details:


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