The IRS has announced a decrease in the Employer Shared Responsibility (ESR) penalties under the Affordable Care Act (ACA) for 2025. At first glance, this might look like a green light for some breathing room, but don’t be fooled. While the penalty reduction brings slight financial relief for Applicable Large Employers (ALEs), ACA compliance is still non-negotiable.

Let’s break down what’s changing, what’s staying the same, and what you, as a broker or employer, need to be thinking about right now.

What’s New for 2025?

As of March 14, 2024, the IRS announced the following reduced ESR penalty amounts for 2025:

  • $2,900 per full-time employee (down from $2,970) if the employer fails to offer minimum essential coverage (MEC) to at least 95% of full-time employees and their dependents.
  • $4,350 per full-time employee (down from $4,460) if the coverage offered is not affordable or does not provide minimum value, and at least one employee receives a premium tax credit through the Marketplace.

These amounts are adjusted annually for inflation and are calculated monthly.

ESR 101: A Quick Refresher

Under the ACA, ALEs, which are generally employers with 50 or more full-time employees, must:

  • Offer Minimum Essential Coverage (MEC) to at least 95% of full-time employees and their dependents.
  • Ensure that coverage is affordable and provides minimum value.
  • File accurate and timely IRS reports: Forms 1094-C and 1095-C.

Failure to meet these standards can lead to one of the two penalties outlined above, but never both.

Compliance Remains Critical

Here’s the catch: even with the slight penalty decrease, non-compliance still carries serious consequences. If even one full-time employee receives a premium tax credit through the Health Insurance Marketplace, and you’ve missed the mark on coverage, you could be on the hook for thousands.

That’s why reporting accuracy is just as important as offering compliant coverage. Form errors or late submissions? Still subject to fines.

Why This Matters Now

This update gives employers a valuable chance to reassess health benefits strategies ahead of 2025. Whether your clients are just crossing the ALE threshold or have long been navigating ACA requirements, this is a good time to:

  • Audit your coverage offerings for affordability and value.
  • Review your full-time employee count and hours tracking.
  • Tighten up your reporting processes and vendor relationships.
  • Ensure your payroll deductions and benefit elections align with ACA thresholds.

How Paragon Partners Helps

At Paragon Partners, we don’t just keep you updated—we help you stay ahead. Our back-office tools and broker support services ensure your clients are set up for success:

  • ACA-compliant quoting tools for small and large groups.
  • Carrier network analysis to align with employee needs.
  • Automated support for pre-tax deductions and form prep (1094-C/1095-C).
  • Year-round renewal strategy and field underwriting for ongoing compliance.

Taking Action

ACA compliance isn’t a one-and-done, it’s ongoing. With the 2025 ESR penalties slightly lower, there’s an opportunity to realign and optimize, but there’s no room for complacency. Let Paragon Partners support your business with tailored strategies, compliance confidence, and the human connection you expect from a partner who truly cares.

Need a compliance checkup or support with ACA filings?
Get in touch with your Paragon rep today