The Affordable Care Act’s Employer Shared Responsibility provisions (commonly called the “employer mandate”) apply to Applicable Large Employers (ALEs). ALEs are generally employers with 50 or more full-time employees, including full-time equivalents (FTEs), on average during the prior calendar year.
The mandate requires ALEs to offer qualifying, affordable health coverage to full-time employees and their dependents or potentially face IRS penalties under Internal Revenue Code §4980H.
What’s Required
To comply with the employer mandate, ALEs must:
- Offer Minimum Essential Coverage (MEC) to substantially all full-time employees and their dependent children up to age 26;
- Ensure that the coverage offered is both:
- Affordable (employee contribution for lowest-cost self-only plan ≤ IRS affordability threshold), and
- Provides Minimum Value (MV) (covers at least 60% of total allowed costs for Essential Health Benefits); and
- Report annually to the IRS on offers of coverage, employee status, cost of coverage and other required data (Forms 1094-C and 1095-C).
Two Core Penalties (IRC §4980H)
Applicable Large Employers (ALEs) may be subject to one or both of the following penalties if they fail to meet ACA employer mandate requirements:
- §4980H(a) – “No Coverage” Penalty
- Applies if an ALE fails to offer MEC to at least 95% of its full-time employees and their dependents.
- Triggered when at least one full-time employee receives a Premium Tax Credit (PTC) to help pay for Individual/Family Plan (IFP) Marketplace coverage.
- The penalty is applied to all full-time employees, minus the first 30.
- Annualized Penalty Amount (2026): $3,340 per affected full-time employee (indexed annually).
- §4980H(b) – “Unaffordable / Inadequate Coverage” Penalty
- Applies if an ALE does offer coverage, but the coverage is either unaffordable or does not provide Minimum Value (MV), and at least one full-time employee receives a PTC for IFP Marketplace coverage.
- Assessed per affected employee, rather than across the entire full-time population.
- Annualized penalty amount (2026): $5,010 per affected full-time employee (indexed annually).
IRS Reporting
After the conclusion of the calendar year, ALEs must file Forms 1094-C and 1095-C with the IRS and distribute 1095-Cs to employees. This reporting:
- Confirms ALE status and compliance with the employer mandate;
- Identifies which employees were offered qualifying coverage each month and under what standards;
- Provides the IRS with the information needed to assess potential §4980H penalties for noncompliance.
- Supports IRS adjudication of Premium Tax Credit (PTC) eligibility. Employees who receive a qualifying offer of affordable, minimum value coverage from an employer of any size (including non-ALEs) are generally not eligible for PTCs.
Key Takeaways
- The employer mandate applies to ALEs only.
- Compliance is measured monthly, but penalties are assessed annually.
- Avoiding penalties requires offering coverage (MEC) to full-time employees and dependents, and ensuring it is affordable and minimum value.
IRS reporting is mandatory for all ALEs, even those that met all requirements.