469 / What is the employer mandate imposed by the ACA?
Employers with at least 50 full-time equivalent employees (“FTEs”) must offer insurance meeting specified requirements or pay a $2,000 per full-time worker penalty after its first 30 employees if any of its full-time employees receive a federal premium subsidy through a state health insurance exchange (which would occur because the employee was not being offered sufficient coverage through the employer).1
A different penalty applies for employers of at least 50 full-time equivalent employees that offer some insurance coverage but not enough to meet federal requirements. In this case, the penalty is $3,000 per full-time employee who gets government assistance and buys coverage in an exchange, subject to a maximum penalty of $2,000 times the number of full-time employees in excess of the first 30.2
The amounts are adjusted annually for inflation each year. The penalties under IRC Section 4980H(a) were increased to $3,340 in 2026 ($2,900 in 2025 and $2,970 for 2024). The penalties under IRC Section 4980H(b) were increased to $5,010 ($4,350 in 2025 and $4,460 for 2024).
The shared responsibility penalty on employers for failing to provide minimum essential health insurance excludes excepted benefits under Public Health Service Act 2971(c), including long-term care as well as standalone vision and standalone dental plans.
Planning Point: Applicable large employers have received (and will continue to receive) notices regarding liability for the employer shared responsibility penalties via 226J letters. These letters detail the employer’s violation and it is important that any employer who receives a 226J letter responds within the time frame listed in the letter. Letter 226J should contain a deadline for a response, usually 30 days after the letter was issued (employers may request a 30-day extension by calling a 4980H response unit number listed on the letter itself). It is important to get expert advice when drafting the response, but issues to consider include whether the IRS was using the correct data (i.e., was a corrected Form 1094 filed with the IRS in the year to which the letter relates?), whether the plan was a calendar year plan (transition relief may apply) and whether the employer did, in fact, offer minimum coverage during each month.
1. IRC §§ 4980H(a), 4980H(c)(1).
2. IRC § 4980H(b).