Internal Revenue Bulletin No. 2025–33

Bulletin Overview: ACA Penalty Adjustments Headline Issue 2025-33

This edition of the Internal Revenue Bulletin (IRB) 2025-33, dated August 11, 2025, primarily addresses adjustments to the Affordable Care Act (ACA) penalties under Internal Revenue Code (IRC) § 4980H. Section 4980H addresses the Employer Shared Responsibility provisions, which require certain large employers to offer affordable, minimum-value health coverage to their full-time employees. The key item is Revenue Procedure 2025-26, which provides inflation-adjusted applicable dollar amounts for calculating employer shared responsibility payments under both § 4980H(a) and § 4980H(b). It is important to remember that § 4980H(a) is triggered when an Applicable Large Employer (ALE) fails to offer Minimum Essential Coverage (MEC) to at least 95% of its full-time employees and their dependents, and at least one full-time employee receives a Premium Tax Credit (PTC) through a Health Insurance Marketplace. The § 4980H(b) penalty applies when an ALE does offer coverage, but that coverage is either unaffordable or fails to provide Minimum Value (MV), and again, at least one full-time employee receives a PTC. These amounts, originally set in the statute at $2,000 and $3,000 respectively, are indexed annually and have risen substantially since the ACA's implementation.

Deep Dive: Rev. Proc. 2025-26 Sets 2026 ESRP Mandate Costs

As previously discussed, the Employer Shared Responsibility Payments (ESRP) under Section 4980H, designed to incentivize employers to provide affordable health coverage, are indexed annually. Revenue Procedure 2025-26 provides the indexed amounts for the 2026 calendar year.

The Rule: Revenue Procedure 2025-26 sets the adjusted applicable dollar amounts for calculating the Employer Shared Responsibility Payments (ESRP) under Section 4980H for the 2026 calendar year. Specifically, the adjusted amount under Section 4980H(a) is $3,340, while the adjusted amount under Section 4980H(b) is $5,010. Section 4980H(a) of the Internal Revenue Code imposes a penalty on Applicable Large Employers (ALEs) that fail to offer minimum essential coverage to substantially all full-time employees and their dependents. Section 4980H(b) imposes a penalty on ALEs that offer coverage that is either unaffordable or does not provide minimum value.

The Calculation: Section 2 of the Revenue Procedure outlines the mathematical basis for these adjustments. Section 4980H(c)(5) mandates that the original amounts ($2,000 for § 4980H(a) and $3,000 for § 4980H(b)) be increased by the 'premium adjustment percentage,' as defined in Section 1302(c)(4) of the Patient Protection and Affordable Care Act (ACA). The Department of Health and Human Services (HHS) calculates and publishes this percentage. For 2026, HHS determined the premium adjustment percentage to be approximately 1.6726771319. This was derived from comparing the most recent National Health Expenditure Accounts (NHEA) projection of per-enrollee premiums for private health insurance in 2025 ($7,885) to the most recent NHEA estimate for 2013 ($4,714). Applying this factor, the $2,000 amount is multiplied by 1.6726771319, resulting in $3,345.35, which is then rounded down to $3,340. Similarly, the $3,000 amount is multiplied by 1.6726771319, resulting in $5,018.03, which is rounded down to $5,010.

Context & Implication: Section 4980H(a) and Section 4980H(b) are the core of the ACA's "Play or Pay" mandates, which aim to encourage employers to offer affordable, quality health coverage. Section 4980H(a) penalizes Applicable Large Employers (ALEs) that don't offer coverage to at least 95% of their full-time employees and their dependents, provided at least one full-time employee receives a Premium Tax Credit (PTC). Section 4980H(b) penalizes ALEs that do offer coverage, but the coverage is either unaffordable (employee's share of the premium exceeds a certain percentage of their household income) or doesn't provide minimum value (less than 60% of total allowed costs). The increase in these indexed amounts directly impacts ALEs' budgeting and strategic planning for 2026 health benefits. Employers must factor in these higher potential penalties when determining whether to offer coverage, and if so, the level of coverage and employee contribution amounts. According to Section 3 of the Revenue Procedure, the effective date for these adjusted amounts is for taxable years and plan years beginning after December 31, 2025.