IRS Releases ACA Pay-or-Play Penalties for 2025

The IRS recently released updated penalty amounts for 2025 related to the employer shared responsibility (pay-or-play) rules under the Affordable Care Act (ACA). For calendar year 2025, the adjusted $2,000 penalty amount is $2,900, and the adjusted $3,000 penalty amount is $4,350. This is a decrease from the penalty amounts for the 2024 calendar year, which are $2,970 and $4,460, respectively.

Under the pay-or-play rules, an applicable large employer (ALE) is only liable for a penalty if at least one full-time employee receives a subsidy for Exchange coverage. Employees who are offered affordable, minimum-value (MV) coverage are generally not eligible for these Exchange subsidies.Depending on the circumstances, one of two penalties may apply under the pay-or-play rules: the Section 4980H(a) penalty or the Section 4980H(b) penalty.

Under Section 4980H(a), an ALE will be subject to a penalty if it does not offer coverage to “substantially all” (generally, at least 95%) of its full-time employees and any one of its full-time employees receives a subsidy toward their Exchange plan. This monthly penalty is equal to the ALE’s number of full-time employees (minus 30) multiplied by 1/12 of $2,000 (as adjusted) for any applicable month. For 2025, the adjusted penalty amount is $2,900.

Under Section 4980H(b), ALEs that offer coverage to substantially all full-time employees but whose coverage is unaffordable or does not provide minimum value may still be subject to a penalty. The monthly penalty assessed on an ALE for each full-time employee who receives a subsidy is 1/12 of $3,000 (as adjusted) for any applicable month. For 2025, the adjusted penalty amount is $4,350. However, the total penalty for an ALE is limited to the 4980H(a) penalty amount.