2026 Updates – ACA Employer Mandate

November 2025

This week, the IRS released guidance announcing the 2026 affordability percentage and §4980H penalty amounts, both of which increased significantly. 

• For 2026, the affordability percentage is 9.96%. IRS Rev. Proc. 2025-25: Rev. Proc. 2025-25
• For 2026, the §4980H(a) penalty is $3,340 ($278.33/month) and the §4980H(b) penalty is $5,010 ($417.50/month). IRS Rev. Proc. 2025-26 – Rev. Proc. 2025-26

As the IRS continues to actively enforce the employer shared responsibility payments and associated employer reporting requirements, we are reminded that all applicable large employers (ALEs) are subject to §4980H offer of coverage requirements and §6056 employer reporting requirements on Form 1094-C and Form 1095-Cs. ALEs that fail to comply with §4980H offer of coverage requirements may face penalties (i.e., employer shared responsibility payments) for full-time employees who enroll in subsidized coverage through a public Marketplace.

To avoid potential §4980H penalties, ALEs must offer coverage to full-time employees that provides minimum value (60% or better actuarial value) and is affordable. ALEs must also offer at least minimum essential coverage (MEC) to full-time employees’ dependent children. To meet the affordability requirement under §4980H(b), the required employee contribution for the lowest cost minimum value plan option for employee-only (single) coverage cannot exceed 9.96% (in 2026) of the employee’s household income or one of three available safe harbors (i.e., federal poverty level (FPL), rate of pay, or Form W-2). NOTE: Small employers (<50 FTEs) are not required to offer coverage to full-time employees, and if choosing to do so, are not required to make an affordable offer of coverage.

The increase from 9.02% (in 2025) to 9.96% (in 2026) will allow ALEs to charge a slightly higher employee contribution for single coverage while still meeting §4980H(b) affordability requirements. The affordability percentage adjustments apply for “plan years beginning in…,” and therefore an ALE with a non-calendar year must apply the percentage for the year in which the plan year begins. For example, an ALE with a medical plan year of July – June would use 9.02% for the plan year beginning in July 2025 and 9.96% for the plan year beginning in July 2026.

Going into 2026, ALEs need to weigh the potential risks of increased §4980H penalties against the cost of offering compliant coverage to full-time employees and their dependent children.

• 4980H(a) – If the employer fails to offer MEC to at least 95% (or all but 5, if greater) of full-time employees and their dependent children in any given month, a penalty will apply if any full-time employee enrolls through a public Marketplace and qualifies for a premium tax credit (or tax subsidy). The penalty is multiplied by the total full-time employee count minus the first 30, regardless of how many employees were offered coverage.
  
  2026 penalty calculation = (full-time employee count – 30) X $278.33 for each month of non-compliance
• 4980H(b) – If the employer satisfies §4980H(a) requirements, the employer may still owe a penalty for any full-time employee who is not offered minimum-value, affordable coverage if that employee enrolls through a public Marketplace and qualifies for a premium tax credit. This penalty applies on a per-employee basis rather than against the total full-time employee count. 
  
  Penalty calculation = $417.50/month for each full-time employee who enrolls through a public Marketplace and qualifies for a premium tax credit because they were not offered minimum-value, affordable coverage.

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