On Feb. 12, 2024, the Internal Revenue Service (IRS) released Revenue Procedure 2024-14 with updated penalty amounts to the employer shared responsibility (pay-or-play) rules under the Affordable Care Act (ACA) for the 2025 calendar year.
The table below captures the updated pay-or-play penalty amounts for the 2025 calendar year, which have decreased from the penalty amounts for the 2024 calendar year.
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ACA Pay-or-Play Penalties
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2025
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2024
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Notes
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“A” Penalties §4980H(a)
“sledgehammer” penalty
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$2,900
($241.67/month)
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$2,970
($247.50/month)
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Penalty for failing to offer group health plan coverage to at least 95% of full-time employees (and their children up to age 26) for any month during the year and at least one employee enrolls in Exchange coverage with a premium tax credit.
- Based on the total number of full-time employees employed that month minus the first 30.
- Calculated on a group level, which means this penalty applies to each full-time employee, even if they did not receive a premium tax credit to enroll in Exchange coverage.
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“B” Penalties
§4980H(b)
“tack hammer” penalty
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$4,350
($362.50/month)
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$4,460
($371.67/month)
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Penalty for failing to offer affordable, minimum value group health plan coverage to a full-time employee who enrolls in Exchange coverage with a premium tax credit.
- Calculated on an employee level, based on which employees receive premium tax credits.
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ACA Premium Tax Credit Background
Under the ACA, employees are generally not eligible for a premium tax credit to buy a qualified health plan through the Health Insurance Marketplace, also known as the Exchange, if their employer-sponsored health coverage is considered affordable, minimum value coverage. Minimum value coverage is determined by ensuring that the plan's share of the total allowed costs of benefits provided to the employee must be at least 60%, and the plan must provide substantial coverage of inpatient hospital and physician services.
To be considered affordable, an employee’s contribution for self-only coverage under the lowest plan cost option available cannot exceed 8.39% of the employee’s household income for the 2024 tax year. Employers exercise significant control over employee contribution rates and must satisfy ACA affordability rules to avoid penalties. Consequently, if a full-time employee of an employer subject to the ACA (an “) receives a premium tax credit to purchase a health plan through an Exchange due to an unaffordable offer of coverage, the employer will generally be subject to certain ACA employer shared responsibility penalties outlined in the table above.
Applicable Large Employer (ALE) Definition Refresher
An ALE is an employer with at least 50 full-time employees, including full-time equivalent employees, on average during the prior calendar year.
ALEs include all employers within the same controlled group.
Employer Impact
Since these newly released pay-or-play penalty amounts are applicable to the 2025 calendar year, there is no immediate action for ALEs right now other than awareness of these amounts for 2025.
ALEs are advised to diligently track compliance with ACA rules, including properly identifying full-time employees for affordable coverage offers, throughout the course of the year to avoid pay-or-play penalties. Click here for a helpful IRS FAQs resource webpage for more information.
On a related note, the IRS also recently released an updated FAQs document related to premium tax credits. This updated FAQs document is a helpful reference to provide to those employees who have general questions regarding premium tax credits intersecting with an offer of coverage under an employer-sponsored group health plan.
Risk Strategies is here to help. Contact us directly at benefits@risk-strategies.com.
