2025 Pay-or-Play Penalties Decrease

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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