Under the Affordable Care Act (ACA), if you are an “applicable large employer” (ALE), there are two key things you need to know this time of year: First, if you do not offer at least 95% of your full-time employees health coverage that qualifies as “minimum essential coverage” (MEC), and that it is also “minimum value” (MV) and “affordable,” you could find yourself owing a penalty under sections 4980H(a) or 4980H(b) to the Internal Revenue Service (IRS). Second, so that the IRS can track compliance with sections 4980H(a) and (b), you must annually prepare, furnish to your employees, and file with the IRS the Forms 1094/1095. (A small employer that offers a self-funded health plan must also report to the IRS.)
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 – currently $2,970 for 2024) 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 – currently $4,350 for 2024) for each full-time employee who receives the premium tax credit.
ACA’s Employer Shared Responsibility Penalty Rates in 2025.
The IRS announced that 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. The new penalty amounts will be effective for taxable years and plan years beginning after December 31, 2024.