IRS Increases ACA Employer Mandate Penalties For 2027

The IRS has announced the adjusted 2027 penalty amounts for violations of the Affordable Care Act’s employer shared responsibility provisions (otherwise known as the ACA Employer Mandate). The ACA Employer Mandate authorizes the Internal Revenue Service (IRS) to assess a penalty on applicable large employers under one of the following two circumstances:

1. Penalty A: The applicable large employer fails to offer “substantially all” of its full-time employees and their dependents the opportunity to enroll in minimum essential coverage and any full-time employee receives a subsidy for coverage through Covered California. (26 U.S.C. section 4980H(a)(1).)
2. Penalty B: The applicable large employer offers coverage to full-time employees and their dependents that is “unaffordable” or does not offer “minimum value” and a full-time employee receives a subsidy for coverage through Covered California. (26 U.S.C. section 4980H(b)(1).)

The amount of the penalties changes year-to-year. For plan years beginning after December 31, 2026, Penalty A will be $3,780 per year ($315 per month) multiplied by the number of full-time employees employed by the employer less 30. Penalty B will be $5,670 per year ($472.50 per month) multiplied by the number of full-time employees who obtain subsidized coverage through Covered California. These penalty amounts for 2027 are higher than the amounts currently in place for 2026 ($3,340 per year for Penalty A and $5,010 per year for Penalty B).

Here are some examples of how Penalty A and Penalty B are calculated based on the penalty amounts for 2027:

Penalty A Example: If an applicable large employer has 300 full-time employees and fails to offer “substantially all” of its full-time employees and their dependents the opportunity to enroll in minimum essential coverage, and at least one of those employees receives a subsidy for coverage through Covered California for 12 months, then the IRS could assess a Penalty A at $3,780 multiplied by 270 (300 minus 30 full-time employees), which is $1,020,600.

Penalty B Example: If an applicable large employer has 300 full-time employees and fails to offer coverage that is affordable and provides “minimum value,” and 10 of those employees receive a subsidy for coverage through Covered California for 12 months, then the IRS could assess a Penalty B in the amount of $56,700 ($5,670 multiplied by 10 employees who obtain the subsidy).

While employers who intend to offer full-time employees and their dependents affordable minimum essential coverage hope to never face these penalties, it helps to be aware of the adjusted amounts year-to-year as part of staying up to date on the ACA. For more information, see IRS Revenue Procedure 2026-22.

IRS Updates Sample Educational Assistance Plan And FAQs
To Reflect Recent Legal Updates.

The past 12 months have brought a number of legal updates to educational assistance plans (EAPs) under section 127 of the Internal Revenue Code. In April 2026, the IRS updated its Frequently Asked Questions webpage about EAPs. Employers that provide educational assistance benefits to help employees pay for tuition, fees, books, supplies, equipment, and qualified student loans may exclude the payments, up to the annual limit, from employees’ gross income if the benefit complies with section 127. The IRS’s FAQs describe and clarify the benefit. Here are the highlights from the IRS’s FAQs:

• Updated Sample EAP Plan: To qualify as a valid EAP, the plan must be written and must meet certain other requirements. The IRS released an updated sample plan to assist employers with establishing EAPs that comply with section 127. (See IRS Publication 5993 for the sample EAP plan.)
• Educational Assistance Plan (section 127 Plan) Cap Increase: Starting in 2026, the $5,250 annual cap for section 127 educational assistance benefits will be adjusted for increases in the cost of living. The IRS will announce what the new amount will be. Unused amounts cannot be carried forward to subsequent years.
• Repayments to Qualified Education Loans: Employer-provided student loan repayments are now a permanent benefit available through a section 127 educational assistance plan. The benefit includes principal or interest payments on certain qualified education loans incurred by the employees paid directly to a third party (such as an educational provider or a loan servicer) or directly reimbursed to the employee. Generally, EAP benefits for qualified education loans are only available if the employer amends the terms of its EAP plan to include the benefit.
• No Educational Assistance Benefits for Spouses or Dependents: EAP benefits only apply to employees. An employer cannot provide EAP benefits for the spouse or dependent of an employee.

For more information, please see the IRS’s EAP FAQs webpage: https://www.irs.gov/newsroom/updates-to-frequently-asked-questions-about-educational-assistance-programs.