ACA Pay-or-Play Changes May Impact Employers in 2026

The Affordable Care Act (ACA) requires applicable large employers (ALEs) to offer affordable, minimum-value (MV) health coverage to their full-time employees (FTEs) or risk paying a penalty. This employer mandate provision is known as the “employer shared responsibility” or “pay-or-play” rules. An ALE is only liable for a penalty if one or more of its FTEs receive a premium tax credit (PTC) to pay for health insurance through an ACA Exchange (or Marketplace). 

Employers should be aware of the following changes related to the ACA’s pay-or-play rules for 2026:

• An ALE’s health coverage is considered affordable for FTEs if their required contribution for self-only coverage does not exceed 9.96% of their household income for the year (up from 9.02% for 2025);
• Pay-or-play penalty amounts significantly increase. For example, ALEs assessed with penalties because their coverage is unaffordable may be charged a monthly penalty of $417.50 for each FTE who receives a PTC (up from $362.50 for 2025); and
• The enhanced PTC expires at the end of 2025 (unless extended by Congress), which means that fewer individuals will qualify for the PTC and subsidy amounts will be smaller.

This SSG Compliance Advisor explains these changes.

Pay or Play Rules

• ALEs may be liable for pay-or-play penalties when employees purchase health insurance through an Exchange and qualify for a PTC.
• An ALE is an employer that employs, on average, at least 50 FTEs, including full-time equivalents, during the preceding calendar year.
• Individuals who are eligible for affordable, MV health coverage through their employers are not eligible for a PTC.

Employer Action Items

ALEs should review the pay-or-play changes for 2026 in advance of the upcoming plan year. The significant increase in penalty amounts may make it more important than ever for an ALE to offer affordable, MV health coverage to its FTEs. Also, due to the increased affordability percentage, ALEs may be able to charge employees more for coverage while still avoiding penalties. When the enhanced PTC expires, fewer employees may qualify for the subsidy. However, employers with individual coverage health reimbursement arrangements (ICHRAs) may need to contribute more to meet the ACA’s affordability requirements.

Affordability Percentage Increases for 2026

The affordability of health coverage is a key point in determining whether an ALE may be subject to a penalty. Individuals who are eligible for employer-sponsored coverage that is affordable and provides MV are not eligible for a PTC. An ALE’s health coverage is considered affordable if the employee’s required contribution to the plan does not exceed 9.5% (as adjusted annually) of the employee’s household income for the taxable year. For purposes of the pay-or-play rules, the affordability test applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that provides MV.

Because an employer generally will not know an employee’s household income, the IRS has provided three optional affordability safe harbors that ALEs may use to determine affordability based on information that is available to them: the federal poverty level (FPL) safe harbor, the rate of pay safe harbor and the Form W-2 safe harbor.

On July 18, 2025, the IRS released Revenue Procedure 2025-25 to index the contribution percentage in 2026 for determining the affordability of an employer’s health plan. For plan years beginning in 2026, employer-sponsored coverage will be considered affordable under the ACA’s pay-or-play rules if the employee’s required contribution for self-only coverage does not exceed 9.96% of their household income for the year. This is a significant increase from the affordability contribution percentage for 2025 (9.02%) and the highest the affordability percentage has ever been. This increase potentially allows employers to charge a higher amount for health coverage while still avoiding penalties. 

The new percentage has the following impact on the affordability safe harbors for 2026:

• FPL safe harbor: Coverage is considered affordable if the employee’s contribution for self-only coverage does not exceed 9.96% of the FPL for a single individual for the applicable calendar year, which equals approximately $129.90 per month for calendar-year health plans (up from $113.20 per month in 2025);
• Rate of pay safe harbor: Coverage is considered affordable if the employee’s monthly contribution for self-only coverage does not exceed 9.96% of monthly wages. For hourly employees, monthly wages are calculated by multiplying the hourly rate by 130. For an employee earning $20 per hour, this equals approximately $258.96 per month (up from $234.52 in 2025); and
• Form W-2 safe harbor: Coverage is considered affordable if the employee’s contribution for self-only coverage does not exceed 9.96% of the employee’s W-2 wages from the employer for that year. For an employee earning $45,000 per year, this equals approximately $373.50 per month (up from $338.25 in 2025).

Continue reading this SSG Compliance Advisor to learn about:

• Pay-or-Play Penalties Increase for 2026
• Enhanced PTC Expires for 2026

Resources

• Revenue Procedure 2025-25, which adjusts the affordability percentage for 2026
• Revenue Procedure 2025-26, which adjusts the penalty amounts for 2026
• IRS’ questions and answers for employers on the pay-or-play rules

For help understanding and strategically managing your benefit's plan, contact an SSG Advisor.