The “Tack Hammer Penalty”
ATTENTION LARGE EMPLOYERS: Here’s How The Government Makes It Possible To Limit Your Health Plan Cost To $362.50 PEPM starting in 2025:
The ACA large employer penalty under IRS Section § 4980H(b) applies when the employer offers its full-time employees the opportunity to enroll in minimum essential coverage such as an ICHRA and one or more full-time employees receives a premium tax credit cost-sharing reduction. The employer penalty is applied to each employee receiving a federal tax subsidy. This penalty is commonly known as the “Tack Hammer Penalty.”
The “Tack Hammer Penalty” for 2025 has reduced to $362.50. A defined contribution plan such as an ICHRA may choose to limit the plan’s contribution to the same amount or the plan could choose to contribute less. If the former the plan’s cost would never be more, penalty or not. If the later the plan’s cost would never be more than $362.50 but likely less.
| ACA Pay-or-Play Penalties | 2025 | 2024 | |
| “A” Penalties §4980H(a) “sledgehammer” penalty | $2,900 $241.67/month | $2,970 $247.50/month | |
| “B” Penalties §4980H(b) “tack hammer” penalty | $4,350 $362.50/month | $4,460 $371.67/month | s. |
Conclusion:
If a large employer sponsors a defined contribution plan such as an ICHRA to all full-time employees and contributes $362.50 per participating employee per month the employer’s cost will be never more than $362.50 per employee whether the employee’s share of the cost is affordable or not.
If a large employer contributes less the employer’s cost will be less for the majority but never more than $362.50 for the minority who receive a federal tax subsidy.
The best ACA compliant defined contribution plan on the planet is ICHRA. It gets the employer out of the health insurance business and avoids most of the political, social and economic liabilities associated with sponsoring traditional group health plans these days.
