February 21, 2024
IRS issued Revenue Procedure (Rev. Proc.) 2024-14 with the indexing adjustments under the Affordable Care Act’s (ACA’s) employer penalty provisions in Internal Revenue Code (IRC) § 4980H(a) and (b) annualized for calendar year 2025.
For employers subject to the ACA’s employer shared responsibility provisions (ESRP) (also known as the “employer mandate”), penalties may apply if an offer of health coverage is not made to enough full-time employees (FTEs) or if the offer does not meet certain standards for “minimum value” and “affordability”. For additional background information, please refer to the IRS Summary Page on ACA ESRP Requirements.
Key Takeaway
In accordance with the annual indexing rules, the ACA “sledgehammer” and “tack hammer” amounts are updated for calendar year 2025.
The penalty is listed as an annual amount but would be divided by 12 and applied monthly to the extent it is assessed based on a comparison of reporting to the IRS from the ACA marketplaces and the “Applicable Large Employer” (ALE) using required IRS Forms 1094-C and 1095-C.
Updated Amounts
- § 4980H(a) – “sledgehammer” penalty – statutory $2,000 adjusted to
$2,900/year
- $241.67 per month, per FTE
- Assessed for all FTEs of an ALE (with conditions and limitations)
- Background: An ALE may owe the “sledgehammer” penalty if it does not offer “minimum essential coverage” to at least 95 percent of its FTEs (and their dependents), and at least one FTE receives the premium tax credit for purchasing coverage through an ACA Health Insurance Marketplace.
- § 4980H(b) – “tack hammer” penalty – statutory $3,000 adjusted to
$4,350/year
- $362.50 per month, per impacted individual FTE
- Assessed on an individual FTE basis
- Background: An ALE may owe the “tack hammer” penalty for any individual FTE who receives the premium tax credit for purchasing coverage through an ACA Health Insurance Marketplace, if any of the following conditions are true for the individual FTE:
- 1 | The coverage offered to the FTE is not “affordable” under ACA rules;
- 2 | The coverage offered to the FTE does not provide “minimum value” under ACA rules; or
- 3 | The FTE was not offered coverage (i.e., was not one of the at least 95% of FTEs who were offered coverage to avoid the “sledgehammer” penalty)
Note that both penalties will not apply for the same ALE for the same months covering the same FTEs (i.e., only one may apply at a time) and there are other limitations and detailed rules/allowances that apply.
If you have questions, comments, or concerns about these or other regulatory and compliance issues, please contact us.
We provide this material for informational purposes only; it is not a substitute for legal advice.
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