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.
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:
Download the bulletin for more details.
Employer Shared Responsibility Provisions
Types of Employer Payments and How They Are Calculated