On July 22, 2025, the IRS released Revenue Procedure 2025-26, which in part provides indexing adjustments for penalties under the ACA employer mandate. The ACA requires applicable large employers (ALEs), those with 50 or more full-time employees and full-time equivalent employees, to offer affordable minimum value (MV) coverage to all full-time employees and their dependents or risk a penalty.
Notably, the employer mandate penalty amounts for 2026 are increased from the 2025 penalty amounts. For plan years beginning on or after January 1, 2026, the annual penalties are calculated as follows:
- Penalty A (failure to offer minimum essential coverage to 95% of all full-time employees and their dependents and at least one full-time employee purchases exchange coverage and receives a premium tax credit):
- (Total number of full-time employees - 30*) x $3,340 (for 2025: $2,900).
- Penalty B (failure to offer affordable coverage that meets MV standards):
- (Number of full-time employees who receive a premium tax credit) x $5,010 (for 2025: $4,350).
Both penalties, although commonly expressed as annual amounts, are assessed monthly.
Employer Takeaway
The 2026 penalty increases are significant; ALEs should review their ACA compliance practices to reduce any potential ACA penalty exposure. ALEs should regularly verify that employees who generally work at least 30 hours per week are offered affordable MV coverage to avoid ACA employer mandate penalties.
Additionally, ALEs should ensure they accurately and timely report all required information on the Forms 1094-C and 1095-C. The IRS uses Letter 226-J to inform employers of their potential liability for such penalties. Employers should promptly review and respond to any IRS Letter 226-J they receive and consult with counsel as necessary.
For further information regarding the ACA employer mandate and penalties, please ask your broker or consultant for a copy of the NFP publication ACA: Employer Mandate Penalties and Affordability.