Applicable Large Employers (ALEs) may be subject to one of two penalties under the ACA’s Employer Shared Responsibility (“employer mandate”) provisions if they fail to meet the ACA’s minimum coverage, affordability, or offer requirements.
These penalties are calculated monthly but applied on a calendar year basis, aligning with how ALE and compliance status is determined. An ALE will only ever be assessed Penalty A or Penalty B for a given month – never both. Penalty B is capped at the amount that would have applied under Penalty A.
- Penalty A (§4980H(a)) – Applies when an ALE fails to offer Minimum Essential Coverage (MEC) to “substantially all” full-time employees and their dependent children.
- Penalty B (§4980H(b)) – Applies when an ALE offers coverage, but it is either unaffordable or does not meet Minimum Value, and at least one full-time employee receives a Premium Tax Credit (PTC) through the Exchange.
Penalty A – §4980H(a): No Coverage
This penalty applies if the ALE fails to offer MEC to “substantially all” full-time employees (the greater of 95% or 5 employees) and their dependent children in a given month.
- 2025: $2,900 annualized per full-time employee (minus the first 30), assessed monthly at $241.67/month.
- 2026: $3,340 annualized per full-time employee (minus the first 30), assessed monthly at $278.33/month.
Key Information:
- Assessed per month and applied to all full-time employees, not just those receiving a subsidy.
- Triggered if even one full-time employee receives a PTC during a month the employer fails the “substantially all” standard.
Penalty B – §4980H(b): Unaffordable or Insufficient Coverage
This penalty applies if the ALE offers coverage to “substantially all” full-time employees and dependents, but:
- The coverage is not affordable under the ALE’s ACA safe harbors, or
- The plan does not provide Minimum Value, and
- At least one full-time employee receives a PTC through the Exchange.
- 2025: $4,350 annualized per affected full-time employee, assessed monthly at $362.50/month
- 2026: $5,010 annualized per affected full-time employee, assessed monthly at $417.50/month
Key Information:
- Assessed only on subsidized employees, not all full-time employees.
- Calculated monthly, then annualized.
- Cannot exceed the total amount that would have applied under Penalty A.
How Penalties Are Triggered & Assessed
- PTC Trigger: Either penalty is triggered when at least one full-time employee receives a Premium Tax Credit (PTC) for Marketplace coverage.
- For Penalty A, this single subsidized employee triggers the penalty for all FT employees (minus 30).
- For Penalty B, the penalty applies only to each subsidized FT employee who was not offered affordable, minimum value coverage.
- Monthly Calculation: Penalties are assessed monthly to account for waiting periods, mid-year hires, and workforce changes.
- Non-Discrimination: Employers may not discriminate against employees who receive a PTC if they are eligible. Employees who are offered affordable, minimum value coverage by any employer are not eligible for PTCs. The IRS uses ACA reporting (Forms 1094-C and 1095-C) to adjudicate eligibility and determine potential penalties
Timing & Reporting Considerations
- Employer Mandate Penalties apply on a calendar year basis.
- ACA Percentage (affordability %) is set annually but applies on the plan year.
- ACA IRS Reporting occurs after the end of the calendar year to report how the ALE complied month by month, through Forms 1094-C and 1095-C.