Last month’s IRS Revenue Procedure 2026-22 signalled another substantial hike in penalties for non-compliance with the ACA’s Employer Shared Responsibility Provisions [or Employer Mandate].
These penalties fell in TY 2025 but have risen substantially for the current TY 2026 [reporting in 2027]. See ACA-To-Z Blog: Time to Get Ahead of ACA Changes.
They are now set to rise again for TY 2027 [reporting 2028].
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THE TWO ACA EMPLOYER MANDATE PENALTIES
Applicable Large Employers [ALEs] are required to offer Minimum Essential Coverage [MEC] health insurance to all their Full-Time Employees and their dependents — and this offer must be both Affordable and meet Minimum Value [MV].
For detailed definitions of all these terms, visit BENEFITSCAPE‘s ACA Central.
Employers can incur one of two so-called ‘pay-or-play’ penalties for ACA non-compliance; and the amounts of these penalties are adjusted each year based on national health expenditure projections.
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PENALTY A: Non-Compliance with IR Code Section 4980H(a).
This penalty is incurred by ALEs that fail to offer Minimum Essential Coverage to at least 95% of their Full-Time Employees. The penalty is triggered if even one employee who should have been made an offer instead received a Premium Tax Credit [PTC] from a state or federal Healthcare Marketplace.
CALCULATING PENALTY A
For TY26, non-compliance incurs an annualized penalty of $3,340 per employee for every Full-Time Employee on an organization’s workforce [minus 30 standard exemptions]. In other words, PENALTY A is an all or nothing fine, reflecting the overall size of a workforce, not just a sum for each offending PTC issued. So an ALE with 230 Full-Time Employees, for example, would be fined $638,000 [200 x $3,340] for non-compliance in TY26 — even if only one eligible employee made a PTC claim.
For TY2027 [reporting 2028] the annualized penalty goes up to $3,780 [$315.00 monthly]. So the same ALE with 230 Full-Time Employees would be fined $756,000 [200 x $3,780].
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PENALTY B: Non-Compliance with IR Code Section 4980H(b).
This penalty is incurred when the coverage offered Full-Time Employees did not meet either Affordability or Minimum Value criteria — and at least one of these employees received a state or federal PTC.
CALCULATING PENALTY B
Unlike 4980H(a) penalties, the 4980H(b) penalty is applied on a per-case basis. When employees receive a PTC, the IRS cross-references the employer’s FORM 1095-C filings to check if the employees were offered Minimum Essential Coverage that was Affordable and met Minimum Value. For every failure in TY26, the employer is subject to an annualized penalty of $5,010 per employee [or $417.50 a month]. So, for example, if 100 Full-Time Employees obtained PTCs in TY26 because the offered coverage was not Affordable, the employer would be fined $501,000 [100 x $5,010].
For TY2027 [reporting 2028] the annualized penalty goes up to $5,670 per employee [$472.50 monthly]. So if 100 Full-Time Employees obtained PTCs in TY27 because the offered coverage was not Affordable, the employer would be fined $567,000 [100 x $5,670].
Both penalties, although commonly expressed as annual amounts, are assessed monthly.
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NOW IS A GOOD TIME TO GET AHEAD OF ACA CHANGES
Both the 2026 and 2027 penalty increases are considerable; now would be a very good time any ALE to review their ACA Compliance practices to reduce any potential ACA penalty exposure, particularly tracking eligibility and Affordability Management.
The IRS uses Letter 226-J to inform employers of their potential liability for Employer Mandate penalties. Employers should promptly review and respond to any IRS Letter 226-J they receive and consult with their ACA specialist.
BENEFITSCAPE is the market leader in ACA Reporting & Compliance. Whatever your ACA needs, from prior penalty remediation to your final e-filing, or any step in between, we are happy to help.
Don’t wait. Contact us today by emailing info@benefitscape.com, call +1 508-655-3307, or use the contact form on benefitscape.com.
