On May 4, 2026, the IRS released updated penalty amounts for 2027 related to the employer shared responsibility (“pay-or-play”) rules under the Affordable Care Act (ACA). The ACA requires applicable large employers (ALEs) to offer affordable, minimum-value (MV) health coverage to their full-time employees (FTEs) or potentially pay a penalty to the IRS.
Depending on the circumstances, one of two penalties may apply under the pay-or-play rules, the 4980H(a) penalty or the 4980H(b) penalty, as follows:
- Under Section 4980H(a), an ALE will be subject to a penalty if it does not offer coverage to substantially all FTEs and any one of its FTEs receives a subsidy for purchasing individual health coverage through an Exchange. This monthly penalty is equal to the ALE’s number of FTEs (minus 30) multiplied by one-twelfth of $2,000 (as adjusted) for any applicable month. For 2027, the penalty increases to $3,780 (up from $3,340 for 2026); and
- Under Section 4980H(b), ALEs that offer coverage to substantially all FTEs may still be subject to a penalty if at least one FTE obtains a subsidy through an Exchange because the ALE did not offer coverage to all FTEs, or the ALE’s coverage is unaffordable or does not provide MV. The monthly penalty assessed on an ALE for each FTE who receives a subsidy is one-twelfth of $3,000 (as adjusted) for any applicable month. For 2027, the penalty increases to $5,670 (up from $5,010 for 2026). However, the total penalty for an ALE is limited to the 4980H(a) penalty amount.
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