IRS Increases ACA Employer Mandate Penalties For 2026

The IRS has announced the adjusted 2026 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)); or
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. 4980H(b)(1).)

The amount of the penalties changes year-to-year. For plan years beginning after December 31, 2025, Penalty A will be $3,340 per year ($278.33 per month) multiplied by the number of full-time employees employed by the employer less 30. Penalty B will be $5,010 per year ($417.50 per month) multiplied by the number of full-time employees who obtain subsidized coverage through Covered California. These penalty amounts for 2026 are higher than the amounts currently in place for 2025 ($2,900 per year for Penalty A and $4,350 per year for Penalty B).

Here are some examples of how Penalty A and Penalty B are calculated based on the penalty amounts for 2026:

Penalty A Example: If an applicable large employer has 200 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 $3,340 multiplied by 170 (200 minus 30 full-time employees), which is $567,800.

Penalty B Example: If an applicable large employer has 200 full-time employees and fails to offer coverage that 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 $50,100 ($5,010 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 2025-26.