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The Affordable Care Act (ACA) introduced the Employer Shared Responsibility provisions (ESRP), often referred to as the ACA Pay or Play Penalty. These provisions mandate that certain employers offer affordable health insurance coverage to their full-time employees and their dependents. Failure to comply with these requirements can result in financial penalties known as excise taxes.
Under the ESRP, applicable large employers—defined as those with 50 or more full-time employees (including full-time equivalent employees) during the preceding calendar year—must offer minimum essential coverage that meets affordability and minimum value standards to at least 95% of their full-time employees and their dependents. If an employer fails to provide this coverage and at least one full-time employee receives a premium tax credit for purchasing coverage through the Health Insurance Marketplace, they may be subject to an excise tax.
The excise tax serves as a penalty imposed on employers who do not comply with the ESRP requirements. The penalty amount is calculated based on the number of full-time employees the employer has and can be substantial.
The IRS updated the 2025 excise tax amounts in the recently released Revenue Procedure 2024-14. The adjusted penalty amount under Section 4980H(a) of the Code is $2,900 (a $70 decrease from 2024) and the adjusted penalty amount for under Section 4980H(b) of the Code is $4,350 (a $110 decrease from 2024).
It is important for employers subject to the ESRP to carefully monitor compliance with ACA regulations and ensure that they offer affordable and adequate health insurance coverage to eligible employees. Non-compliance with these provisions can have significant financial consequences for organizations.
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