In Revenue Procedure 2024-14, the IRS has announced the 2025 penalty rates for violations of the employer shared responsibility provisions of the Affordable Care Act (“ACA”).
Background. Under the ACA, applicable large employers (“ALEs”), which are employers with 50 or more full-time equivalent employees, are subject to one of two penalties if they fail to comply with the ACA’s employer shared responsibility provisions.
The first penalty applies if: (i) an employer fails to offer health care coverage to “substantially all” of its full-time employees; and (ii) a low-income, full-time employee receives a premium tax credit through an ACA Marketplace. In those situations, the employer must pay an annual penalty of $2,000 (adjusted for inflation) multiplied by the number of full-time employees in excess of 30.
The second penalty applies in situations where: (i) an employer offers health care coverage to its full-time employees that is either “unaffordable” or does not provide “minimum value;” and (ii) a low-income, full-time employee receives a premium tax credit through a Marketplace. In such situations, the employer must pay an annual penalty of $3,000 (adjusted for inflation) for each full-time employee who receives the premium tax credit. However, this penalty is capped at $2,000 (as adjusted) multiplied by the number of full-time employees in excess of 30.
ACA’s Employer Shared Responsibility Penalty Rates in 2025. Under the inflation adjustment rules, the first penalty rate will be $2,900 (down from $2,970 in 2024) per applicable employee. The second penalty rate will be $4,350 (down from $4,460 in 2024) per applicable employee. These new rates will be effective for taxable years and plan years beginning after December 31, 2024.
