Background:
Under the ACA, employers with 50 or more full-time equivalent employees (ALEs) must offer affordable and adequate health coverage to their full-time employees or be subject to potential penalties. These penalty amounts are indexed each year.
2026 §4980H(a) Penalty
Under the ACA, ALEs may be subject to an employer mandate penalty for failing to offer minimum essential coverage (MEC) to 95% of full-time employees and their dependents. This requirement is often referred to as the “sledgehammer” penalty.
For calendar year 2025, the §4980H(a) penalty is $3340.
(A $440 increase from 2025).
The penalty is triggered if a full-time employee purchases coverage through the Marketplace and receives subsidized coverage by way of a premium tax credit. The 4980H(a) penalty amount applies to all the employer’s full-time employees (minus the first 30 employees) once triggered.
2026 §4980H(b) Penalty
If an ALE fails to offer coverage that is affordable and provides minimum value, and a full-time employee receives subsidized coverage through the Marketplace, then the 4980H(b) penalty is triggered. Unlike the §4980H(a) penalty, the §4980H(b) penalty is only imposed with respect to each full-time employee receiving subsidized Marketplace coverage for the month.
For calendar year 2026, the §4980H(b) penalty is $5100.
(A $660 increase from 2025)
Coverage meets the minimum value threshold if the plan’s share of the total allowed costs of benefits provided under the plan is less than 60% of those costs. Coverage is deemed affordable if the employee’s required contribution for self-only coverage does not exceed an affordability percentage annually set by the IRS. In 2026, the affordability percentage will be 9.96%.