The Year-End Employee Benefits Compliance Checklist – 2025

• Who: Applicable Large Employers (ALEs) with 50+ full-time equivalent (FTE) employees.
• Purpose: The ACA mandates that ALEs provide information to the IRS and employees regarding the health coverage offered to full-time employees.
• Requirements: File Form 1095-C for each full-time employee (or Form 1095-B for smaller employers if applicable).
• Deadlines:
  • To Employees: January 31, 2025.
  • To IRS (Paper Filing): February 28, 2025.
  • To IRS (Electronic Filing): April 1, 2025.
• Action: Ensure employee healthcare coverage is accurately reported month by month, including start and end dates. Confirm the filing method (electronic or paper) and ensure all required information is prepared and verified with payroll or HR vendors.

• 2025 Affordability Threshold: For the employer’s coverage to be deemed affordable under ACA, the cost of employee-only coverage should not exceed 9.02% of an employee’s household income. This is an increase from 8.39% in 2025.
• Purpose: Avoid potential penalties for non-compliance with ACA affordability requirements.
• Action: Review the current premium contributions and employee income to confirm compliance with the affordability threshold. You may need to adjust payroll deductions to ensure the health insurance offering meets ACA guidelines.

• Who: Employers issuing 250+ W-2 forms must report the total cost of employer-sponsored health coverage.
• Purpose: Part of the ACA requirements is to help employees understand the value of their health benefits.
• Due Date: January 31, 2025 (when W-2s are due).
• Requirement: Report the total cost of health coverage in Box 12, Code DD, on employees’ W-2 forms.
• Action: Ensure your payroll provider has accurate healthcare coverage information for 2025. Confirm that Box 12 is completed accurately, reflecting the full cost of employer-sponsored health coverage.

• 2025HSA Limits: $4,150 for individual coverage; $8,300 for family coverage. $1,000 additional catch-up for employees aged 55+.
• 2025 HSA Limits: $4,300 for individual coverage; $8,600 for family coverage.
• 2025 FSA Limits: $3,050 per employee for health FSAs.
• Purpose: Ensure employees are within IRS-approved contribution limits for tax-preferred accounts.
• Action: Inform employees of annual limits. Verify that employee payroll deductions do not exceed allowable amounts for both HSAs and FSAs. Communicate the benefits and any employer contribution changes for the new year.

• 2025 Contribution Limits: $23,000 maximum for employee deferrals; $7,500 additional catch-up for employees aged 50+.
• 2025 Contribution Limits: $23,500 maximum for employee deferrals; $7,500 additional catch-up for employees aged 50+.
• Purpose: Comply with annual nondiscrimination testing (ADP, ACP, and top-heavy tests) to prevent preferential treatment in highly compensated employees’ 401(k) contributions.
• Action: Complete annual nondiscrimination tests by December 31, 2025.

Conduct the “Top Heavy” Test.

A 401(k) plan is considered top-heavy if more than 60% of the total plan assets belong to key employees (officers earning over $215,000 in 2025, employees owning more than 5% of the business, or employees owning more than 1% with compensation over $150,000).

If your plan is top-heavy, you must make a minimum contribution (typically 3% of compensation) to all non-highly-compensated employees (NHCEs) to satisfy IRS requirements.

Conduct the Annual Contribution Percentage (ACP) Test.

The ACP test compares employer-matching contributions and employee after-tax contributions for HCEs and NHCEs.

• • • Calculate Each Employee’s Contribution Rate:
      • Contribution Rate = (Employer Match + After-Tax Contributions) / Employee’s Compensation
    • Determine the Average Contribution Rate for NHCEs:
      • Add all NHCEs’ contribution rates and divide by the number of NHCEs.
    • Determine the Average Contribution Rate for HCEs:
      • Add all HCEs’ contribution rates and divide by the number of HCEs.
    • Compare Rates:
      • The HCE average contribution rate must not exceed 1.25 times the NHCE average contribution rate.
      • Alternatively, the HCE rate can be up to 2% higher than the NHCE rate but cannot be more than 2 times the NHCE rate.

Address Any Testing Failures.

If the 401(k) plan fails any of the nondiscrimination tests, take corrective action before the end of the testing correction period (usually by the close of the plan year or within 2½ months following the plan year).

• • Corrective Options for ADP/ACP Failures:
    • Refund Excess Contributions: Return contributions above the limits to HCEs. These refunds are taxable income for the HCEs in the year of the refund.
    • Qualified Nonelective Contributions (QNECs): Make additional contributions to NHCEs to increase their average deferral/contribution rates and bring the plan into compliance.
    • Recharacterize Contributions: Recharacterize excess deferrals as after-tax contributions if plan rules allow, which can help meet the test requirements.

• Deadline: Complete nondiscrimination testing by December 31, 2025.
• Corrective Action Period: Ideally, correct testing failures within 2½ months after the close of the plan year to avoid additional penalties and excise taxes.

• Who: Employers with ERISA-covered health and welfare plans.
• Purpose: Provide a summary of financial and operational information about the plan to plan participants.
• Due Date: December 15, 2025 (if Form 5500 was filed by July 31, 2025) or September 15 (if an extension for Form 5500 was filed).
• Action: Distribute SAR to all eligible employees by the deadline. Ensure information accurately reflects the financial status of the plan and any material modifications.

• Purpose: Compliance with state-mandated employee benefits, including paid leave, health insurance, and other benefits that may vary by state.
• Action: Check state-specific updates for benefits requirements and confirm all benefits comply with state mandates. Update the employee handbook and communicate any changes or new requirements for the upcoming year.

• Purpose: Ensure compliance with federal notification requirements for all employees regarding their rights and benefits.
• Required Notices:
  • Medicare Part D (if offering a prescription drug plan).
  • CHIP (Children’s Health Insurance Program).
  • WHCRA (Women’s Health and Cancer Rights Act).
  • Newborns’ Act.
  • Summary of Benefits and Coverage (SBC).
• Action: Distribute all required notices to employees by December 31, 2025. Ensure they are accessible online, especially for remote employees, and include them in open enrollment materials.

• Who: Employers with 100+ participants in an ERISA-covered plan.
• Purpose: Required for ERISA compliance to report the financial condition, investments, and operations of the plan.
• Due Date: July 31, 2025, for calendar-year plans; October 15, 2025, if an extension is filed.
• Action: Verify that all data required for Form 5500 filing is accurate and complete. Plan to file electronically via the EFAST2 system. Maintain copies of all submitted information for plan records.

• Purpose: Confirm that your Section 125 plan is in compliance, allowing employees to pay for qualified benefits on a pre-tax basis.
• Action: Review the plan document for any 2025 changes and complete annual nondiscrimination testing to ensure no discriminatory impact on highly compensated employees. Communicate any changes to the pre-tax benefit options for the new year.

• Purpose: Ensures that the health plan offered by the employer meets MEC standards, which is necessary for compliance and employee qualification for premium tax credits.
• Action: Confirm with your insurance provider that the plan meets MEC requirements. Distribute an updated Summary of Benefits and Coverage (SBC) to employees.

• Who: Employers with ERISA-covered health and welfare benefit plans.
• Purpose: Ensures employees understand the specifics of their benefit plans, including eligibility, coverage, and other critical details.
• Due Date: Within 90 days of an employee’s plan enrollment or within 120 days of a new plan establishment.
• Action: Provide each participant with an SPD and update it if any significant changes were made to the plan in 2025.

• Who: Employers with 20+ employees, subject to COBRA continuation requirements.
• Purpose: Ensure compliance with COBRA by providing employees and their dependents the option to continue group health benefits under qualifying events.
• Action: Verify that termination notices and open enrollment materials include accurate COBRA information. Make sure COBRA notices are provided timely to any qualifying employees.

• Who: Employers with 50+ employees must provide eligible employees with up to 12 weeks of unpaid, job-protected leave for specified family and medical reasons.
• Purpose: Compliance with federal FMLA guidelines to avoid penalties and maintain fair leave practices.
• Action: Review the FMLA policy for any 2025 changes. Ensure FMLA leave is tracked correctly and provide eligible employees with timely FMLA notices and information about their rights.

• Purpose: Communicate benefits changes for 2025 to help employees make informed decisions about their coverage options.
• Action: Schedule open enrollment meetings or send resources detailing the new year’s benefits options. Provide support for any questions, and communicate any changes in costs, coverage, or contribution limits for the coming year.

• Grace Period: Employers may offer a 2.5-month grace period, allowing employees additional time (until March 15) of the following year to use any remaining FSA funds. This option can be especially helpful for employees who may need more time to anticipate and cover out-of-pocket medical expenses.
• Carryover Option: For the 2025 tax year, the IRS has increased the contribution limit for health flexible spending arrangements (FSAs) to $3,300, up from $3,200 in 2025. This adjustment allows employees to set aside more pre-tax dollars for eligible healthcare expenses.

• They hold an officer position within the company;
• They own 5% or more of the company’s shares;
• They earn an annual salary that exceeds the limit specified in Sec. 414(q)(1)(B),which is $155,000 as of 2025.
• Fall within the top 20% of earners in the company, should the employer choose this classification as per Sec. 414(q)(3).

• For the plan year 2025, officers receiving compensation according to Sec. 416(i)(1) amounting to $215,000 for the 2023 plan year are considered key employees.
• Individuals owning 1% of the company with annual earnings of $150,000 (not indexed) or more for the plan year; or
• Those owning 5% of the company or earned, no matter what they earned last year.

• A comprehensive plan document
• A summary document for employees

• Single coverage: $5,850
• Family coverage: $11,800

• Determine  Your Eligibility
  • Employee Count: Ensure your business has fewer than 25 full-time equivalent (FTE) employees.
  • Average Wages: Confirm that the average annual wages of your employees are less than $56,000 per FTE.
  • Premium Contribution: Verify that your business pays at least 50% of the health insurance premiums for your employees.
  • SHOP Enrollment: Enroll your employees in a qualified health plan through the Small Business Health Options Program (SHOP) Marketplace.
    HealthCare.gov
• Calculate the Credit
  • Use IRS Form 8941, “Credit for Small Employer Health Insurance Premiums,” to compute the credit amount. This form guides you through determining the number of FTEs, average wages, and the total premiums paid.
• File the Appropriate Tax Return
  • For-profit Employers: Attach the completed Form 8941 to your annual income tax return (e.g., Form 1120 for corporations or Form 1065 for partnerships).
  • Tax-exempt Employers: File Form 990-T, “Exempt Organization Business Income Tax Return,” even if you don’t typically file this form, and attach Form 8941.
• Adhere to Filing Deadlines
  • Submit your tax return, including Form 8941, by the standard due date for your business type. For calendar-year corporations, this is typically March 15 of the following year; for sole proprietors, it’s April 15. If you require more time, consider filing for an extension using the appropriate IRS form.