2025 ACA Compliance Updates

Navigating Affordable Care Act (ACA) compliance can be complex. In 2025, HR professionals will see the affordability thresholds rise, but it's still crucial to stay vigilant. Even with the increase, employers must carefully manage their health plans to avoid potential employer-shared responsibility penalties (ESRP).

Keep reading to learn about the key changes and how to ensure ACA compliance in 2025.

Affordability Threshold Changes

The affordability threshold represents the percentage of an employee's household income that can be spent on an employer-sponsored healthcare plan.

In 2024, the affordability threshold was set at 8.39%, meaning the lowest-cost employer-sponsored plan for self-only coverage could not exceed 8.39% of an employee’s household income. In 2025, this threshold will increase to 9.02%. 

For example, if an employee’s household income is $40,000 annually, the cost of the lowest-cost plan offered by their employer cannot exceed $3,608.00 per year (9.02% of $40,000).

Safe Harbor Rules for ACA Compliance

An affordability safe harbor is a tool that helps employers determine whether the lowest-cost employer-sponsored healthcare plan remains within the affordability threshold. While the ACA and the IRS don’t mandate the use of these safe harbors, they offer valuable protection against potential employer-shared responsibility penalties (ESRP).

Since the ACA’s affordability requirement is tied to household income, employers can use safe harbors to assess whether their employees meet the affordability standard, especially when they don’t have access to employees' household income data. There are three primary safe harbors employers can use to ensure compliance:

• W-2 Safe Harbor: This is the most complex method, relying on the taxable income reported in Box 1 of an employee’s W-2. Box 1 includes wages, tips, and other compensation, as self-reported by the employee.  
• Rate of Pay Safe Harbor: This method uses the employee’s rate of pay at the start of the coverage period. For hourly employees, adjustments can be made only if their pay rate decreases during the same period.   
• Federal Poverty Line Safe Harbor: This method is determined by comparing an employee's monthly contribution to their employer-sponsored healthcare plan against a percentage of the federal poverty line. Employers can easily calculate whether their plan meets this safe harbor by applying a straightforward formula to see if the contribution stays within the affordability threshold.

First, take the projected 2025 federal poverty line (FPL), which is $15,060, and multiply it by the 2025 affordability threshold, which is 9.02%. 

$15,060 x .0902 = $1,358.41 

Then, divide that figure by 12 to determine monthly payments during the year.  

$1,358.41 / 12 = $113.20

An employee's contribution to the lowest-cost, self-only healthcare plan offered by an employer should not cost more than $113.20 per month or $56.60 for biweekly pay periods. 

The federal poverty line table updates annually but isn’t released until after the year starts. Be sure to keep note of these changes annually. 

ESRP Penalties for  2025

Employer-Shared Responsibility Payments (ESRP) are tax penalties imposed on Applicable Large Employers (ALEs) that fail to meet the Affordable Care Act (ACA) coverage requirements. ALEs are organizations with 50 or more full-time employees or full-time equivalents (FTEs). Calculating FTEs is critical for determining whether your organization qualifies as an ALE and must comply with ACA mandates. This involves tallying employee hours and workloads to ensure accurate reporting.

ESRP penalties generally increase annually, but they have decreased for 2025. The IRS imposes two primary types of penalties on ALEs:

1. The "A" Penalty: Applies when an ALE fails to offer health coverage to at least 95% of its full-time employees.

• 2025 penalty: $2,900 annually per employee ($241.67 monthly)

1. The "B" Penalty: Applies when the coverage offered is either unaffordable or does not meet the minimum value standard.

• 2025 penalty: $4,350 annually per employee ($362.50 monthly)

The IRS can impose a fine if just one uninsured employee applies for a premium tax credit (PTC) to help pay for health coverage through the ACA marketplace. Once the PTC is approved, the ACA exchange notifies the IRS. The IRS then checks your organization’s 1095-C filings to confirm how many full-time employees you have and determines if coverage was offered to at least 95% of them.

For example, if your organization employs 350 full-time workers, the IRS applies a 30-person exemption and calculates the fine like this: $2,900 x (350 - 30) = $928,000

The “Family Glitch” Fix  

Previously, the “family glitch” meant that employees who were offered affordable self-only coverage through their employer were not able to access premium tax credits (PTCs) for their dependents, even if family coverage was unaffordable. This rule created issues, especially for lower-income families who were left with either unaffordable family coverage or no coverage at all.

Under the new family glitch fix, dependents of employees who are offered affordable self-only coverage can now qualify for subsidies through the ACA marketplace if the employer's family coverage is deemed unaffordable. The affordability test is based on whether the employee's family coverage exceeds the set affordability threshold, which is 9.02% of household income in 2024 and 2025.

This fix benefits lower-income families, and employers should stay informed about how these changes may impact their employees and their dependents' eligibility for ACA marketplace coverage.  

Keeping up with all of these details is challenging. An all-in-one HRIS like BerniePortal can help you distribute ACA forms such as the 1095-C and remain compliant with the new ACA changes through its compliance feature.

Additional Resources

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