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2025 Pay-or-Play Penalties Decrease

words penalty on a calculator on desk

1.5 minute read

The IRS released updated employer responsibility (pay-or-play) penalty amounts under the Affordable Care Act (ACA). The rules require applicable large employers (ALEs) to offer affordable, minimum value health coverage to their full-time employees or pay a penalty.ALEs may be liable for a penalty if at least one full-time employee receives a subsidy for Exchange coverage. Employees who are offered affordable, minimum value coverage are generally not eligible for these Exchange subsidies.


The Penalties

Two separate penalties can apply under these rules: Section 4980H(a) penalty and Section 4980H(b) penalty.

Section 4980H(a) Penalty: Applies when an ALE does not offer coverage to “substantially all” (generally at least 95%) full-time employees and dependents and any one of its full-time employees receives a subsidy towards their Exchange plan. The monthly penalty is calculated as the ALE’s number of full-time employees (minus 30) multiplied by 1/12 of $2,000 (as adjusted) for any applicable month.

Section 4980H(b) Penalty: Applies when the ALE does not offer coverage to substantially all full-time employees and dependents and at least one full-time employee obtains a subsidy through an Exchange or the ALE’s coverage is unaffordable or does not provide minimum value. The monthly penalty is calculated as 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 applicable per employee dollar amounts of $2,000 and $3,000 are increased based on the premium adjustment percentage for the year. For calendar year 2025:

  • The adjusted $2,000 amount is $2,900
  • The adjusted $3,000 amount is $4,350

 Download the bulletin for more details.


Additional Resources

Employer Shared Responsibility Provisions

Types of Employer Payments and How They Are Calculated

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National Insurance Services is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Readers are advised to consult with their own attorney for a determination of their legal rights, responsibilities and liabilities, including the interpretation of any statute or regulation, or its application to the readers’ business activities.

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Emily Halter-Kinter

Emily Halter-Kinter

Emily Halter-Kinter looks for ways, either large or small, to make a difference each day. She’s outgoing and really loves what she does. Emily enjoys working closely with her clients to provide the best care. As Account Manager for National Insurance Services, Emily works with schools, cities, and counties in Wisconsin on their health insurance, wellness plans, benefit communication, and retirement incentives. She oversees new client implementation, takes policy-related questions, and meets directly with clients to explain their benefits. Emily is a licensed insurance agent and has over 20 years of insurance experience.