Penalties rarely arrive because an employer chose not to offer coverage. They arrive because someone was not counted as full-time, a threshold moved, or two codes on a form contradicted each other.
ACA penalties do not arrive because an employer decided not to offer coverage. They arrive because a full-time employee was not identified as full-time, because a plan crossed an affordability threshold nobody rechecked, or because a code on a form contradicted another code on the same form.
The amounts are also not small, and they went up meaningfully for 2026.
Both rose sharply from 2025, when the amounts were $2,900 and $4,350 respectively. The increase is an indexing adjustment tied to the premium adjustment percentage, published annually.
Source: IRS Revenue Procedure 2025-26, effective for taxable years and plan years beginning after December 31, 2025.
These are two different failures with very different arithmetic, and the distinction is worth understanding before assuming your exposure is limited.
| §4980H(a) | §4980H(b) | |
|---|---|---|
| Triggered by | Failing to offer minimum essential coverage to at least 95% of full-time employees and their dependents | Offering coverage that is not affordable or does not provide minimum value |
| Applies to | Your entire full-time headcount, minus the first 30 | Only the specific employees who received a premium tax credit |
| 2026 amount | $3,340 per employee per year | $5,010 per employee per year |
| Also requires | At least one full-time employee receiving a premium tax credit | The affected employee receiving a premium tax credit |
| Practical effect | Scales with company size — potentially very large | Scales with the number of affected employees |
The (b) penalty is per affected employee. The (a) penalty is calculated against your entire full-time population minus 30 — regardless of how many employees were actually offered coverage. A 200-employee organization that misses the 95% threshold is looking at 170 × $3,340, not a handful of individual assessments.
A full-time employee is someone with at least 30 hours of service per week, or 130 hours in a month. That sounds simple and is where a great deal of exposure originates — variable-hour employees, seasonal staff, employees who crossed the threshold quietly, and hours of service that include paid leave.
The 95% test is applied against the count of employees who were full-time, not the count you thought were full-time.
For plan years beginning in 2026, coverage is affordable if the employee’s required contribution for the lowest-cost self-only minimum-value plan does not exceed 9.96% of household income — up from 9.02% for 2025. Because employers do not know household income, the IRS provides three safe harbors: federal poverty line, rate of pay, and W-2.
The failure mode is straightforward. Contribution rates get set at renewal, the threshold changes, and nobody rechecks the math against the new percentage. A plan that was affordable last year is not automatically affordable this year.
Source: IRS Revenue Procedure 2025-25 (affordability percentage for plan years beginning in 2026).
Forms 1095-C carry offer-of-coverage codes on line 14 and safe harbor codes on line 16. Those codes have to tell a consistent story. Reporting a qualifying offer without a corresponding safe harbor code, or claiming a safe harbor for an employee who was never offered coverage, creates a contradiction that automated IRS review is built to catch.
Part III of the authoritative Form 1094-C includes a column indicating whether minimum essential coverage was offered to at least 95% of full-time employees each month. Leaving it unchecked when it should be checked is read as a statement that you did not meet the threshold — which is precisely what triggers the (a) penalty.
Applicable large employers — generally those averaging 50 or more full-time and full-time-equivalent employees in the prior calendar year — have annual filing and furnishing obligations separate from the coverage requirement itself.
One change worth knowing: employers are no longer required to automatically mail Form 1095-C to every full-time employee. A notice posted on your website stating that the form is available on request satisfies the requirement, provided it is posted by the furnishing deadline, remains available through October 15, and forms are provided within 30 days of a request.
It does not override state mandates. Employees living in states with direct furnishing requirements — California, New Jersey and Rhode Island among them — still need to receive their forms. Multi-state employers cannot apply the notice method uniformly.
The IRS proposes employer shared responsibility payments through Letter 226-J, which includes Form 14764 for responding. For proposed assessments issued on or after January 1, 2025, employers have at least 90 days to respond.
A proposed assessment is not a final determination. A meaningful share of them trace back to reporting errors rather than actual coverage failures — a miscounted full-time population, a coding contradiction, an unchecked box. Those are arguable, but only with the underlying data to support the argument, which is why the records matter more than the response letter.
ACA tracking and filing support covers the measurement and documentation side as well as the filing itself — because the defensibility of a filing is established long before the form is submitted.
Tell us how you are measuring full-time status and when affordability was last rechecked. That usually surfaces the answer quickly.
Talk to an AdvisorEvery plan year and workforce is different. Tell us your situation and we will give you a straight answer.