February 26, 2024

IRS Releases ACA Pay-or-Play Penalties for 2025

On Feb. 12, 2024, the IRS released updated penalty amounts for 2025 related to the employer shared responsibility (pay-or-play) 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.

Important Dates

  • March 9, 2023: The IRS released pay-or-play penalty amounts for 2024.
  • Feb. 12, 2024: The IRS released pay-or-play penalty amounts for 2025.
  • 2025 Calendar Year: The 2025 penalty amounts apply for failures to offer affordable, MV coverage during the 2025 calendar year.

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 their 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) 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.

IRS Pay-or-Play Penalty Resources

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

Additional web pages are dedicated to other aspects of the pay-or-play rules.

For more compliance resources, contact Apex Benefits today.

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