Affordable Care Act (ACA) Penalties Fall for 2025

ACA penalties for 2025 have been released and they are going DOWN for the first time in history. Learn what they are and ways to try and avoid them altogether.

ACA news in 2024 has started with a bang. First, we heard the exciting news from the Centers for Medicare and Medicaid Services (CMMS) that, as of January 24, 2024, a record 21.3 million Americans had already signed up for ACA coverage for 2024 -nearly 5 million more than signed up last year.

And now, just a few weeks later, we hear that penalties for 2025 have already been released and they are going down for the first time in history. 

Since the ACA’s inception in March 2010, regulations have evolved, and penalties have steadily risen year over year, including for the 2024 tax year. But on February 12, 2024, the IRS announced that 4980H employer mandate penalties for non-compliant applicable large employers (ALEs) for 2025 are actually falling

*Note* Despite this drop in penalty amounts, it’s critical that your organization maintains ACA regulatory requirements to help avoid paying the still substantial penalties at all.

How is this possible? (The math)

The penalty amounts are indexed annually for inflation. In the case of any calendar year after 2014, the applicable per-employee dollar amounts of $2,000 for Penalty A and $3,000 for Penalty B are increased based on the premium adjustment percentage for the year, rounded to the next lowest multiple of $10. For 2025, the premium adjustment percentage dropped below its calculated value for 2024, resulting in a drop in potential penalty amounts from 2024 tax year to 2025 tax year.  

Here’s a recap:

For tax year 2025

  • Penalty A—failure to offer minimum essential coverage to 95% of full-time, benefit eligible employees—will decrease from $2,970 ($247.50/month) in 2024 to $2,900 ($241.67/month)

  • Penalty B—failure to provide affordable, minimum value coverage to a benefit eligible employee—will decrease from $4,460 ($371.67/month) in 2024 to $4,350 ($362.50/month)

Definitions Explained

Penalty A: Failure to offer minimum essential coverage to 95% of full-time, benefits eligible employees

Penalty B: Failure to provide affordable, minimum value coverage to a benefits eligible employee  

The affordability threshold – used for employer shared responsibility provisions to determine whether employer-sponsored health coverage is considered affordable – dropped for 2024 and has not yet been announced for 2025. For 2024, the affordability threshold decreased significantly from 9.12% in 2023 to 8.39%. These percentages are used to determine the amount of household income eligible individuals can contribute toward the cost of coverage in order for it to be considered affordable. This percentage is important when setting employer contributions for self-only coverage for plans beginning on or after January 1, 2024. Coverage will be considered affordable if an employee’s required contribution for self-only coverage does not exceed 8.39% of their household income.

Employers who are out of compliance with either condition may be subject to the newly announced IRS penalties. Under IRS definitions for the ACA, if an employer has at least 50 full-time employees (including full-time equivalent employees) during the prior year, that employer is considered an Applicable Large Employer (ALE) for the current calendar year. For either penalty to apply to an ALE, they must be out of compliance and at least one full-time employee must receive the premium tax credit for purchasing coverage through the Marketplace.

With the IRS actively assessing potential penalties, it’s critical that your organization maintains ACA regulatory requirements. If your company is subject to this mandate, failure to meet these guidelines or to properly complete your IRS forms could expose your company to penalties that increase the longer you remain out of compliance.

It is always a good idea to stay on top of your responsibilities under the law in order to help your business reduce or potentially avoid unnecessary ACA risk and potential IRS penalties. To help stay on the right track with your 2023 ACA reporting, dig into our eBook, 5 Steps to Smoother 2023 ACA Reporting, for more in depth information including important deadlines, penalties, and regulations to know.

The information provided is intended as general guidance and is not intended to convey any tax, benefits, or legal advice. For information pertaining to your company and its specific facts and needs, please consult your own tax advisor or legal counsel.  Equifax Workforce Solutions provides services that can help employers reduce their compliance risks. Details on our provision of these services and related support will be contained in your services agreement. Links to sources may be to third party sites. We have no control over and assume no responsibility for the content, privacy policies or practices of any third party sites or services.