2026 Employer Mandate Updates for Affordability and Penalties

When planning your 2026 benefits, take notice of the updated affordability thresholds and their corresponding penalties if not met.

Are you an Applicable Large Employer?

If you have more than 50 full-time employees in your company or more than 50 full-time employees in a combination of commonly owned companies, you are going to be considered an "Applicable Large Employer" (ALE) for the purposes of the employer mandate of the Affordable Care Act (ACA).  And, if this applies to you, then you should be aware of the adjustments that happen each calendar year for the rules of affordability, as well as the yearly increase in the penalty for those who fail to meet these minimums.

The Internal Revenue Service (IRS) just released the employer mandate penalty amounts for the 2026 calendar year.

Let's focus on those "Affordability" rules first because this has a direct correlation to setting up your employee payroll deduction amounts for the launch of your 2026 health plans. There are three different Safe Harbor rules that an employer can claim to meet the affordability rules. 

Federal Poverty Line (FPL) Safe Harbor

The first is making sure that the dollar amount your employee pays for their self-only coverage doesn't exceed the new 9.96% amount of the FPL number. Currently, we have to work off the 2025 FPL number of $15,650.  Simply put, don't charge your employees more than $129.90 per month on their self-only health insurance and you will be safe from a penalty.

Rate of Pay Safe Harbor

The more popular safe harbor is the Rate of Pay Safe Harbor.  This means you are attesting you don't charge your employees more than 9.96% of the annual earnings based on their rate of pay x 130 hours for a month. 

Most of our clients choose their lowest wage earning group of employees and use that number to set the threshold for their companies.  Others, however, may choose to scale up or scale down the costs based on multiple different groupings of their workforce (higher wage earners pay more than lower wage earners).

The Form W2 Affordability Safe Harbor

This option is available, but is the least used.  Because of the variability of a longer leave of absence or unpaid time off, we don't recommend using this option.

Ugly Penalties

Now that you have your dollar amounts set, let's talk about the dollars you just saved by being compliant and the ugly penalties you avoided.

Oh, and the penalties grew this year.

Penalty "A"

Penalty 4980H(a) applies if you didn't offer coverage to 95% of your employees that met the Minimum Essential Coverage (MEC) definition.

Penalty "B"

Penalty 4980H(b) is be triggered for any month in which a specific employee received subsidized coverage in either the Federal Marketplace (Healthcare.gov) or their specific state-based healthcare exchange.  If one of your employees receives a subsidy then you will be tested on the criteria of:

• Minimum Essential Coverage was or was not offered
• If offered, did the coverage meet the actuarial thresholds to quality as a Minimum Value Plan
• And, did the cost you charge your employee pass the Affordability threshold.

If your coverage met all of those criteria, you wouldn't owe a penalty. But if any of the tests failed, you would owe the penalty as outlined in the chart below.

How to make sure you have it right for 2026?

The easiest thing to do is to pick a health plan that meets both the Minimum Essential Coverage and Minimum Value Plan thresholds and offer it to all of your full-time employees at one of the established pricing/affordability safe harbors.

For most of our clients, we keep it simple and offer the coverages based on their lowest wage employee. But, that might be different than what your company's budget will allow.

If that is the case, you might deserve a more thorough conversation around how to utilize Minimum Essential Coverage plans or how to stagger the cost to employees based on allowable criteria.  If that makes sense, let's talk.