ACA Penalties Set to Rise in 2026

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The IRS has announced the updated penalty amounts under the Affordable Care Act’s (ACA) employer shared responsibility provisions for the 2026 calendar year. These penalties apply to applicable large employers (ALEs) (employers with 50 or more full-time or full-time equivalent employees) that fail to offer qualifying health coverage to their workforce.

For 2026, both categories of employer mandate penalties will increase significantly:

• The penalty for failing to offer minimum essential coverage to at least 95% of full-time employees (and their dependent children) under Internal Revenue Code §4980H(a) will rise to $3,340 annually per full-time employee, minus the first 30 employees. This is up from $2,900 in 2025.
• The penalty for offering coverage that is not affordable or does not meet minimum value under §4980H(b) will increase to $5,010 annually for each full-time employee who receives a subsidy through a public Marketplace. This is up from $4,350 in 2025.

These penalties are assessed monthly, not annually. For budgeting purposes, this translates to approximately $278.33 per month per employee for §4980H(a) violations and $417.50 per month** **per impacted employee for §4980H(b) violations.

Affordability Threshold Also Increasing

The ACA affordability percentage, which determines whether an employee’s share of the premium for self-only coverage is affordable, will also increase in 2026. The IRS has set the new affordability threshold at 9.96% of household income, up from 9.02%** **in 2025. This increase gives employers a little more flexibility to raise employee contributions while still meeting affordability requirements under the ACA.

Employers with non-calendar-year plans should note that the affordability percentage applies based on the plan year start date. For example, an ALE with a July - June plan year will continue to use 9.02% for the plan year beginning in July 2025 and transition to 9.96% for the plan year beginning in July 2026.

Key Takeaways for Employers

Given the increased financial risk, ALEs should take the following steps:

• Ensure that health coverage is offered to all full-time employees and their dependent children.
• Confirm that the offered coverage meets both minimum value and affordability standards.
• Accurately complete and file Forms 1094-C and 1095-C to meet ACA reporting obligations.
• Review processes for tracking full-time status, especially for variable-hour employees.
• Respond promptly to any IRS communications regarding ACA compliance, including Letter 226-J.

With higher penalties on the horizon, now is the time for employers to assess their ACA compliance practices and make any necessary adjustments before the 2026 plan year begins.