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February 15, 2024
2024-0412

Penalties for failing to offer affordable health care with minimum coverage decrease for 2025

The IRS has issued the indexing adjustments for calculating employer shared responsibility payments (ESRPs) under the Affordable Care Act (ACA) for 2025 (Revenue Procedure 2024-14). Under the new calculations, the 2025 ESRPs will be less than for 2024.

Background

Employers are responsible for ESRPs for any given month when: (1) an applicable large employer (ALE) fails to offer minimum essential coverage (MEC) to at least 95% of full-time employees (the "A Penalty"), or (2) an ALE offers full-time employees and their dependents MEC providing minimum value that is unaffordable (the "B Penalty"). In both cases, an ESRP is only triggered when a full-time employee enrolls in coverage through a federal or state-provided health insurance marketplace and qualifies for premium support in the form of a premium tax credit (PTC) under IRC Section 36B.

The ESRP amounts were set by the ACA in 2014 to be indexed each year by a formula incorporating the premium adjustment percentage.

For 2025, an employer that does not offer MEC coverage to at least 95% of their full-time employees may be assessed the "A Penalty" of $2,900 for each full-time employee (down from $2,970 for 2024). An employer that does not offer minimum value that is affordable may be assessed the B penalty of $4,350 for each full-time employee who receives a PTC (down from $4,460 for 2024). An employer cannot be subject to both penalties.

Implications

The lower penalty amounts for 2025 are the result of changes to the income and premium factors that are used in calculating the penalty amounts. Employers should consider these amounts when estimating their potential ACA compliance reporting expenses.

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Contact Information

For additional information concerning this Alert, please contact:

Workforce Tax Services — Affordable Care Act Compliance

Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor
 

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