IRS Releases ACA Pay-or-Play Penalties for 2026
On July 22, 2025, the IRS released updated penalty amounts for 2026 related to the employer shared responsibility (“pay-or-play”) rules under the Affordable Care Act (ACA). For calendar year 2026, the adjusted $2,000 penalty amount is $3,340, and the adjusted $3,000 penalty amount is $5,010. This is an increase from the penalty amounts for the 2025 calendar year, which are $2,900 and $4,350, respectively.
Pay-or-Play Rules
The ACA requires applicable large employers (ALEs) to offer affordable, minimum-value (MV) health coverage to their full-time employees (and dependents) or potentially pay a penalty to the IRS. An ALE is an employer with at least 50 full-time employees, including full-time equivalent employees, during the preceding calendar year.
An ALE may be subject to a pay-or-play penalty if at least one full-time employee receives a premium tax credit for purchasing individual health coverage through an Exchange and the ALE:
- Did not offer health plan coverage to “substantially all” (generally, at least 95%) of full-time employees and their dependents;
- Offered health plan coverage to substantially all full-time employees but not to the specific full-time employee receiving the credit; or
- Offered health plan coverage to full-time employees that was unaffordable or did not provide MV.
Pay-or-Play Penalty Calculations
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 of its full-time employees (and dependents) and any one of its full-time employees receives a subsidy toward their Exchange plan. This monthly penalty is equal to the ALE’s number of full-time employees (minus 30) multiplied by one-twelfth of $2,000 (as adjusted) for any applicable month. For 2026, the adjusted penalty amount is $3,340; and
Under Section 4980H(b), ALEs that offer coverage to substantially all full-time employees (and dependents) may still be subject to a penalty if at least one full-time employee obtains a subsidy through an Exchange because the ALE did not offer coverage to all full-time employees, or the ALE’s coverage is unaffordable or does not provide MV. The monthly penalty assessed on an ALE for each full-time employee who receives a subsidy is one-twelfth of $3,000 (as adjusted) for any applicable month. For 2026, the adjusted penalty amount is $5,010. However, the total penalty for an ALE is limited to the 4980H(a) penalty amount.
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