IRS Lowers ACA Employer Mandate Penalties For 2025

The IRS has announced the adjusted 2025 penalty amounts for violations of the Affordable Care Act’s employer shared responsibility provisions (otherwise known as the ACA Employer Mandate).  The ACA Employer Mandate authorizes the Internal Revenue Service (IRS) to assess a penalty on applicable large employers under one of the following two circumstances:

1. The applicable large employer fails to offer “substantially all” of its full-time employees and their dependents the opportunity to enroll in minimum essential coverage and any full-time employee receives a subsidy for coverage through Covered California (Penalty A) (26 U.S.C. section 4980H(a)(1)); or
2. The applicable large employer offers coverage to full-time employees and their dependents that is “unaffordable” or does not offer “minimum value” and a full-time employee receives a subsidy for coverage through Covered California (Penalty B). (26 U.S.C. 4980H(b)(1).)

The amount of the penalties changes year-to-year.  For plan years beginning after December 31, 2024, Penalty A will be $2,900 per year ($241.67 per month) multiplied by the number of full-time employees employed by the employer less 30.  Penalty B will be $4,350 per year ($362.50 per month) multiplied by the number of full-time employees who obtain subsidized coverage through Covered California.  These penalty amounts for 2025 are lower than the penalty amounts currently in place for 2024 ($2,970 per year for Penalty A and $4,460 per year for Penalty B).

Here are some examples of how Penalty A and Penalty B are calculated based on the penalty amounts for 2025:

Penalty A Example:  If an applicable large employer has 100 full-time employees and fails to provide “substantially all” of its full-time employees and their dependents the opportunity to enroll in minimum essential coverage and at least one of those employees receives a subsidy for coverage through Covered California for 12 months, then the IRS could assess a Penalty A at $2,900 multiplied by 70 (100 minus 30 full-time employees), which is $203,000.

Penalty B Example:  If an applicable large employer has 100 full-time employees and fails to offer coverage that that is affordable and provides “minimum value”, and 10 of those employees receive a subsidy for coverage through Covered California for 12 months, then the IRS could assess a Penalty B in the amount of $43,500 ($4,350 multiplied by 10 employees who obtain the subsidy).

While employers who intend to offer full-time employees and their dependents with affordable minimum essential coverage hope to never face these penalties, it helps to be aware of the adjusted amounts year-to-year as part of staying up to date on the ACA.  For more information, see IRS Revenue Procedure 2024-14.