Avoiding the ACA Large Employer A and B Penalties in 2025
For Applicable Large Employers (ALEs)—those with 50 or more full-time equivalent employees—the Affordable Care Act (ACA) mandates the offering of health insurance coverage to avoid significant penalties. These penalties, indexed for inflation annually, are commonly referred to as the “A” penalty and the “B” penalty. Here’s a detailed look at these penalties for 2025 and how employers can remain compliant.
The “A” Penalty: Failure to Offer Minimum Essential Coverage (MEC)
The “A” penalty applies if an ALE does not offer MEC to 95% of its full-time employees and their dependents. If even one full-time employee receives a premium tax credit through the Marketplace, this penalty is triggered.
- Penalty Amount: For 2025, the annual penalty is $2,900 per full-time employee, after subtracting the first 30 employees.
- Calculation Example: An employer with 100 full-time employees failing to meet the requirement would face a penalty of approximately $203,000 annually (70 employees × $2,900).
The “B” Penalty: Offering Unaffordable or Substandard Coverage
If MEC is offered but it is either unaffordable or does not meet the minimum value standard (covering at least 60% of healthcare costs), the “B” penalty applies.
- Penalty Amount: For 2025, the penalty is $4,350 per full-time employee who receives a premium tax credit.
- Affordability Threshold: Coverage is considered unaffordable if the employee’s required contribution for self-only coverage exceeds 9.02% of their household income.
- Calculation Example: If 10 employees receive premium tax credits due to unaffordable coverage, the penalty would total $43,500 annually (10 employees × $4,350).
Important 2025 Updates
- Adjusted Affordability Threshold: The affordability threshold has decreased from 9.12% in 2024 to 9.02% in 2025, requiring employers to reevaluate employee premium contributions.
- Increased Penalty Amounts: Both “A” and “B” penalties have risen due to annual inflation adjustments.
How to Ensure Compliance
- Review Employee Eligibility: Ensure you offer coverage to at least 95% of your full-time workforce and their dependents.
- Evaluate Coverage Affordability: Adjust employee contributions to stay within the 9.02% affordability threshold.
- Meet Reporting Deadlines: Timely and accurate submission of IRS Forms 1094-C and 1095-C is critical for compliance.
- Monitor Plan Design: Use tools like the HHS Minimum Value Calculator to confirm that offered plans meet the minimum value standard.
Resources for Employers
Staying compliant with ACA regulations can save businesses from significant financial penalties. For a more in-depth overview of the A and B penalties, see our original blog post, which explains foundational details. Employers can also access updated guidelines directly from the IRS ACA Information Center for Employers
By keeping informed of updates like these, ALEs can ensure they continue meeting ACA requirements and avoid unnecessary penalties. If you have further questions or need assistance with compliance strategies, please reach out to our Broker Support team at 866-951-8404.
References:
- IRS, Employer Shared Responsibility Provisions
- IRS, Minimum Value and Affordability Guidelines
- The Society for Human Resource Management, ACA Penalties for 2025
- BenefitsPro, 2025 ACA Compliance and Penalty Updates