Affordable Care Act (ACA) Employer Mandate

The ACA employer mandate, also called employer shared responsibility, comes from section 4980H of the Internal Revenue Code. It does not force any employer to offer health coverage. It requires certain large employers to pay the IRS when they fall short of the coverage rules.

Two separate payments exist, and each depends on a full-time employee receiving a premium tax credit. A common mistake is to assume a penalty follows automatically from missing a rule. No payment applies unless at least one full-time employee actually receives that credit.

What Does the Employer Mandate Require?

The mandate applies to applicable large employers, generally those averaging 50 or more full-time employees, counting full-time equivalents. To avoid a payment, an ALE must offer minimum essential coverage to at least 95 percent of its full-time employees and their dependents. That coverage must also be affordable and provide minimum value.

A full-time employee averages at least 30 hours of service per week, or 130 hours in a month. Employers are not required to offer coverage at all, and the law instead sets payments for ALEs that fall short, which is why people call the rule pay or play. Employers also file annual reports with the IRS on the coverage they offered, which a separate entry covers.

What Triggers the First Penalty Under Section 4980H(a)?

The (a) payment applies when an ALE offers minimum essential coverage to fewer than 95 percent of its full-time employees and their dependents, and at least one full-time employee receives a premium tax credit. The payment is figured month by month. It is based on the employer's whole full-time headcount, not only the employee who received the credit.

For 2026, the adjusted amount is $3,340 per year for each full-time employee, after the first 30 employees are excluded. An ALE with 100 full-time employees would owe the annual figure for 70 of them, or $233,800 across a full 12 months.

What Triggers the Second Penalty Under Section 4980H(b)?

The (b) payment applies when the ALE meets the 95 percent offer test, but at least one full-time employee still receives a premium tax credit. The IRS describes this as coverage that was unaffordable or lacked minimum value. Affordability and minimum value are tested separately, and the affordability percentage has its own entry.

The 2026 amount is $5,010 per year for each full-time employee who receives a premium tax credit. A cap applies: the total can never exceed what the employer would have owed under the first penalty for the same months. A single credit recipient therefore does not expose the employer to the full headcount.

How Are the Penalties Assessed and Updated?

The statute says the payments are made upon notice and demand by the IRS. Both dollar amounts are indexed each year by the premium adjustment percentage, with increases rounded down to the next multiple of $10. The base figures in section 4980H are $2,000 and $3,000.

The IRS sets each year's figures in a revenue procedure, and Rev. Proc. 2025-26 gives the 2026 amounts of $3,340 and $5,010. Check the IRS figures again for every new year, because the amounts change. Each payment is figured for individual months, so a shortfall that lasts only part of a year is assessed only for those months.

How Does HR Cloud Fit Into the ACA Employer Mandate?

HR Cloud's time tracking page says employees can capture hours on the web or a mobile device, and HR can export timesheets for each pay period. Hours are the raw input behind whether someone averages 30 hours a week. The page does not mention the ACA, full-time status, or section 4980H.

HR Cloud does not offer, price, or administer health coverage. It does not track the 95 percent offer test or tell an employer whether a payment is owed. HR must count full-time employees, decide how coverage is offered, and confirm figures with a benefits advisor or tax professional.

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Frequently Asked Questions

Q: Is the ACA employer mandate still in effect?

A: Yes. The IRS issued 2026 payment amounts in Rev. Proc. 2025-26, so section 4980H still applies. Check for new legislation or guidance before each plan year.

Q: What are the 2026 employer mandate penalty amounts?

A: The first payment is $3,340 per year for each full-time employee after the first 30. The second is $5,010 per year for each full-time employee who receives a premium tax credit.

Q: Do employers with fewer than 50 full-time employees have to offer coverage?

A: No. Section 4980H applies only to applicable large employers, so employers below that size owe neither payment.

Q: Does an employer owe anything if no employee receives a premium tax credit?

A: No. Both payments require at least one full-time employee to receive the credit.

Q: Can a part-time employee's tax credit trigger a penalty?

A: Both payments are tied to full-time employees, who average at least 30 hours of service per week. A credit received by a part-time employee does not by itself trigger either payment.

Q: How long does an employer have to respond to a proposed penalty?

A: The statute gives at least 90 days from the date of the first letter to respond to a proposed assessment. Respond within the deadline stated on the notice.