Overview
Applicable Large Employers (ALEs) may owe one of two penalties under the ACA’s employer mandate (IRC §4980H). A penalty is only possible if at least one full-time employee enrolls in Marketplace coverage and receives a Premium Tax Credit (PTC) they qualify for.
An employee who is offered affordable, minimum value coverage by their employer is generally not eligible for a PTC, which is why the penalties are tied to the coverage the employer offers.
- Penalty A – §4980H(a): May apply if the ALE doesn’t offer coverage to at least 95% of its full-time employees and their dependent children.
- Penalty B – §4980H(b): May apply if the ALE does offer coverage to at least 95% of its full-time employees, but it isn’t affordable or doesn’t provide minimum value.
Penalties are calculated month by month for each calendar year. For any given month, an ALE can owe Penalty A or Penalty B, never both.
Penalty A – §4980H(a): No Coverage
May apply in any month when an ALE doesn’t offer Minimum Essential Coverage (MEC) to at least 95% of its full-time employees and their dependent children, and at least one full-time employee receives a PTC they qualify for.
Penalty A is calculated on all full-time employees, minus 30, not just the employees who received a PTC.
| Year | Annual amount per full-time employee | Monthly amount |
|---|---|---|
| 2025 | $2,900 | $241.67 |
| 2026 | $3,340 | $278.33 |
| 2027 | $3,780 | $315.00 |
Penalty B – §4980H(b): Unaffordable or Inadequate Coverage
May apply in any month when an ALE offers coverage to at least 95% of its full-time employees, but a full-time employee receives a PTC they qualify for because the coverage offered by the employer:
- Wasn’t affordable, or
- Didn’t provide Minimum Value
Penalty B is calculated only for the full-time employees who received a PTC they qualify for, and the total can’t exceed what Penalty A would have been.
| Year | Annual amount per affected employee | Monthly amount |
|---|---|---|
| 2025 | $4,350 | $362.50 |
| 2026 | $5,010 | $417.50 |
| 2027 | $5,670 | $472.50 |
Timing and Reporting
- Penalties are based on the calendar year, month by month.
- The affordability percentage is set each year but applies by plan year. See Affordability.
- Reporting: After each calendar year, ALEs file Forms 1094-C and 1095-C showing their offers of coverage month by month. The IRS uses this information to determine whether a penalty may apply. See Employer Mandate Penalty Enforcement Process.
- No retaliation: Federal law prohibits employers from retaliating against an employee for receiving a Premium Tax Credit.
Important: This information is provided for general educational purposes and reflects the rules as of October 2026. It is not legal or tax advice. How these rules apply depends on each employer’s specific circumstances, so employers should review their situation with their own legal counsel, ERISA attorney, CPA or tax advisor.