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February 6, 2025
2025 Federal Poverty Levels Impact Employer Liability Under Pay-or-Play Rules
The U.S. Department of Health and Human Services (HHS) updates federal poverty levels (FPLs) each year to determine eligibility for certain programs and benefits. HHS’ new guidelines set the 2025 FPL for an individual at $15,650 (up from $15,060 in 2024) in the 48 contiguous states and the District of Columbia. For Alaska and Hawaii, FPLs for an individual are $19,550 and $17,990, respectively (up from $18,810 and $17,310 in 2024).
FPLs may impact an applicable large employer’s (ALE) potential liability under the Affordable Care Act’s (ACA) “pay-or-play” rules in two ways:
- ALEs may use the FPL safe harbor to determine the affordability of their health plan coverage.
- FPLs are used to determine eligibility for premium tax credits for health insurance purchased through an ACA Marketplace.
An ALE is only liable for a pay-or-play penalty if one or more of its full-time employees receives a premium tax credit for health insurance purchased through a Marketplace. Individuals cannot receive these credits if they are eligible for affordable, minimum-value health coverage through their employer, regardless of whether their income meets FPL guidelines.
Action Steps for Employers
To avoid pay-or-play penalties, ALEs should confirm their health coverage is affordable before the start of each plan year. ALEs that use the FPL safe harbor to determine affordability should apply FPL guidelines in effect within six months before the first day of the plan year.
- ALEs with calendar-year health plans should use the 2024 FPL guidelines for the 2025 plan year.
- ALEs with noncalendar-year health plans may use the new 2025 FPL guidelines.
Key Takeaways
- ALEs may be subject to pay-or-play penalties if they do not offer affordable, minimum-value health coverage to their full-time employees.
- These penalties are only triggered when a full-time employee receives a premium tax credit for Marketplace coverage.
- FPLs impact the ACA’s pay-or-play rules because they determine both the affordability of an ALE’s health coverage and whether an individual is eligible for a premium tax credit.
Important Dates
- January 15, 2025 – 2025 FPL guidelines became effective.
- January 11, 2024 – 2024 FPL guidelines became effective.
Affordability of Health Coverage—FPL Safe Harbor
The ACA’s pay-or-play rules require ALEs to offer affordable, minimum-value health coverage to their full-time employees (and dependent children) or risk tax penalties.
- An ALE’s health coverage is considered affordable if the employee’s required contribution does not exceed 9.5% (as adjusted) of their household income for the taxable year.
- For plan years beginning in 2025, the affordability percentage is 9.02% (up from 8.39% in 2024).
Since employers generally do not know an employee’s household income, the IRS provides three optional safe harbors, including the FPL safe harbor. This safe harbor is useful because:
- It provides a predetermined maximum amount for employee contributions.
- It is easy to apply and does not require employee-specific data.
- However, it often requires a larger employer contribution toward the cost of health coverage.
How to Calculate the FPL Safe Harbor for 2025
Employer-provided coverage is affordable under the FPL safe harbor if the employee’s required contribution for the lowest-cost self-only coverage does not exceed 9.02% of the FPL for a single individual, divided by 12.
- For calendar-year health plans (2025 plan year):
- The 2024 FPL ($15,060) is used.
- Calculation: ($15,060 × 9.02%) ÷ 12 = $113.20/month.
- If the monthly employee contribution for the lowest-cost self-only coverage is $113.20 or less, the plan meets the ACA’s affordability standard.
- For noncalendar-year health plans (2025 plan year):
- The 2025 FPL ($15,650) can be used.
- Calculation: ($15,650 × 9.02%) ÷ 12 = $117.64/month.
- Because this monthly contribution limit is higher, employers should use the 2025 FPL guidelines when available.
Premium Tax Credits & Employer Liability
Individuals with household incomes between 100% and 400% of FPL may qualify for premium tax credits to purchase ACA Marketplace coverage.
- A temporary eligibility expansion (through 2025) allows some individuals above 400% of FPL to still qualify for premium tax credits.
- ALEs only face pay-or-play penalties if a full-time employee receives a premium tax credit for Marketplace coverage.
- Employees offered affordable, minimum-value employer coverage are not eligible for premium tax credits.
Federal Poverty Level Guidelines for 2024 & 2025
| Family Size | 2024 Income | 2025 Income |
|---|---|---|
| Individual | $15,060 | $15,650 |
| Family of 2 | $20,440 | $21,150 |
| Family of 3 | $25,820 | $26,650 |
| Family of 4 | $31,200 | $32,150 |
| Family of 5 | $36,580 | $37,650 |
| Family of 6 | $41,960 | $43,150 |
| Family of 7 | $47,340 | $48,650 |
| Family of 8 | $52,720 | $54,150 |
| For each additional person | +$5,380 | +$5,500 |
(Different FPL guidelines apply to Alaska and Hawaii.)
For official sources, visit:
HHS Federal Poverty Guidelines (2025)
HHS Federal Poverty Guidelines (2024)
This Compliance Bulletin is for informational purposes only and should not be considered legal advice. Employers should consult legal counsel for specific guidance.