March 25, 2024 - HUB
By: HUB’s EB Compliance Team
The IRS recently announced the employer mandate penalties for 2025. In what may come as a surprise to some, the penalties are going down next year. Specifically, the (a) penalty will be only $2,900 (down from $2,970 in 2024) and the (b) penalty will go down to $4,350 (down from $4,460).
Who Pays?
As a reminder, the (a) penalty is triggered when an “Applicable Large Employer” or “ALE” does not offer coverage to at least 95% of its full-time employees and at least one full-time employee receives a Premium Tax Credit (“PTC”) or subsidy to purchase individual coverage through an ACA public exchange. By contrast, the (b) penalty applies for each month when an ALE offers coverage that is either unaffordable or does not meet minimum value requirements, or does not offer coverage to a full-time employee, and that employee receives a PTC to purchase individual coverage through an exchange.
An ALE is generally an employer that averages 50 or more full-time equivalent (“FTE”) employees during the prior calendar year. Only employers who are ALEs are subject to the employer mandate. Except for employers not in existence in the previous calendar year who reasonably expect to employ 50 or more FTEs in their first year, ALE status is always based on the prior calendar year rather than the employer’s plan year.
Why The Decrease?
Under the law, the penalty amounts are based on the “premium adjustment percentage” which measures the increase in premiums in employer-sponsored insurance since 2014. The original penalty amounts ($2,000 for (a); $3,000 for (b)) are multiplied by that percentage and then rounded down to the next lowest multiple of $10. Despite what employers may be seeing on their individual plans, the projection used by the Department of Health and Human Services shows that the premiums are actually going down compared to 2024.
Conclusion
While this penalty reduction is welcome news for 2025, it also serves as a reminder for ALEs to focus on their Affordable Care Act compliance. Making sure that offers of coverage are compliant help avoid penalties, regardless of the amount. HUB offers several resources to help employers understand their obligations.
If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.
NOTICE OF DISCLAIMER
Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only, and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.