Applicable Large Employers (ALEs) must comply with the ACA’s Employer Shared Responsibility (“employer mandate”) provisions, also called the 4980H rules. ALEs are required to offer group medical coverage to full-time employees and their dependents. That coverage must:
If these standards are not met, penalties may apply.
Two Types of Employer Mandate Penalties
4980H(a) – “No Coverage” Penalty
- Applies if an ALE fails to offer MEC to at least 95% of full-time employees and their dependents.
- Triggered if at least one full-time employee receives subsidized coverage (premium tax credit) through an Exchange.
- Calculated on all full-time employees minus the first 30, regardless of how many actually receive subsidies.
- Assessed monthly, but applied on a calendar year basis.
- 2025 amount: $2,900 per full-time employee (minus first 30) annually ($241.67 per month)
- 2026 amount: $3,340 per full-time employee (minus first 30) annually ($278.33 per month)
- Indexed annually for inflation
4980H(b) – “Unaffordable or Insufficient Coverage” Penalty
- Applies if coverage is offered but is not affordable or does not provide MV.
- Triggered only for each full-time employee who receives subsidized coverage through an Exchange.
- Assessed monthly and aggregated for the year.
- 2025 amount: $4,350 per subsidized full-time employee annually ($362.50 per month)
- 2026 amount: $5,010 per subsidized full-time employee annually ($417.50 per month)
- Indexed annually for inflation
Important Notes on Penalties
- An employer cannot be assessed both penalties in the same year. If both could apply, the greater penalty is used – typically the 4980H(a) “No Coverage” penalty.
- Because the (a) penalty applies across all full-time employees (minus 30) while the (b) penalty applies only per subsidized employee, the (a) penalty is often larger when triggered.
- Penalties are only triggered if at least one full-time employee receives subsidized Exchange coverage.
Affordability Standards and Safe Harbors
Coverage is considered affordable if the employee contribution for the lowest-cost “employee-only” MEC medical plan does not exceed a set percentage of household income (updated annually).
- 2025 affordability threshold: 9.02%
- 2026 affordability threshold: 9.96%
- (Applies on a plan-year basis — the threshold in effect at renewal applies for the entire plan year.
Because employers rarely know household income, they may rely on one of three IRS safe harbors:
- Form W-2 wages (for corresponding tax year)
- Rate of pay (130 hours/month for hourly employees; monthly salary for salaried)
- Federal Poverty Line (FPL)
Employee Classifications
- Averages 30+ hours per week (or 130+ hours per month).
- Employers may use the monthly or look-back measurement method for variable-hour employees.
Part Time Employees:
- Not required to be offered coverage through the mandate.
- A calculation method only – used to determine ALE status (50+ threshold).
- Not actual employees and do not need to be offered coverage.