{"id":31744,"date":"2025-08-04T10:23:40","date_gmt":"2025-08-04T15:23:40","guid":{"rendered":"https:\/\/www.bbrown.com\/?post_type=insight&p=31744"},"modified":"2025-08-04T10:23:40","modified_gmt":"2025-08-04T15:23:40","slug":"2025-employer-shared-responsibility-payment-amounts-aca-affordability","status":"publish","type":"insight","link":"https:\/\/www.bbrown.com\/us\/insight\/2025-employer-shared-responsibility-payment-amounts-aca-affordability\/","title":{"rendered":"IRS Announces Significant Updates to the 2026 Employer Shared Responsibility Payment Amounts and 2026 ACA Affordability of Coverage Percentage Amount"},"content":{"rendered":"

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Employee Benefits<\/p>\n

\n IRS Announces Significant Updates to the 2026 Employer Shared Responsibility Payment Amounts and 2026 ACA Affordability of Coverage Percentage Amount\n <\/h1>\n\t\n <\/div>\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t<\/div>\n\n\t<\/div>\n\n\t\n[\/vc_column][\/vc_row][vc_row][vc_column width=”2\/3″]\n
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\n IRS Announces Significant Updates to the 2026 Employer Shared Responsibility Payment Amounts and 2026 ACA Affordability of Coverage Percentage Amount\n <\/h1>\n\t\n <\/div>[vc_column_text css=””]On July 18, 2025, the IRS issued Revenue Procedure 2025-25<\/a>, announcing the 2026 indexed contribution percentage amount for determining the affordability of an Applicable Large Employer\u2019s plan under the Affordable Care Act (ACA). The IRS also announced the 2026 inflationary adjustment to the employer shared responsibility payment amounts a few days later. Employers should be aware of the significant increase in both the affordability percentage and the employer shared responsibility payment amounts for 2026.<\/p>\n

Employer Shared Responsibility Payment Amounts<\/h3>\n

Applicable Large Employers (ALEs) may be subject to two types of ACA penalties, often referred to as the \u201c(a) penalty\u201d under IRC Section 4980H(a) and the \u201c(b) penalty\u201d under IRC Section 4980H(b). ALEs need to evaluate their exposure to each penalty. These penalties are adjusted each year based on the annual inflationary adjustment amounts published by the IRS. The two potential penalties are detailed below.<\/p>\n

Penalty for Failure to Offer Substantially All Full-Time Employees Minimum Essential Coverage<\/h4>\n

The first penalty (i.e., the (a) penalty) under the employer mandate is triggered when an ALE fails to offer \u201csubstantially all\u201d (defined as at least 95%) of their full-time employees minimum essential coverage (MEC) and at least one full-time employee purchases coverage from the Marketplace\/Exchange and receives a premium tax credit. A full-time employee is defined as an employee that has, or is expected to have, at least 30 or more hours of service a week or 130 or more hours of service a month.<\/p>\n

The Internal Revenue Service (IRS) recently released an annual inflationary adjustment to this penalty amount for the 2026 calendar year (see Rev. Proc. 2025-26<\/a>).<\/p>\n

For 2026, the annual penalty amount associated with an ALE that fails to offer MEC to substantially all full-time employees (and at least one full-time employee goes to the Marketplace\/Exchange and receives a premium tax credit) is $3,340<\/strong> ($278.33 per month) per full-time employee, minus the first 30 full-time employees. This is an increase from $2,900 ($241.67 per month) in 2025.<\/p>\n

Penalty for Failure to Offer Affordable and Minimum Value Coverage to a Full-Time Employee<\/h4>\n

Even if an ALE offers substantially all of its full-time employees MEC, an ALE could still be subject to penalties under the (b) penalty for failing to offer affordable and minimum value (MV) coverage to any full-time employee who receives a premium tax credit to purchase coverage in the Marketplace\/Exchange.<\/p>\n

For 2026, the annual penalty amount associated with an ALE failing to offer affordable and minimum value coverage to a full-time employee is $5,010<\/strong> ($417.50 per month) for each full-time employee who was not offered either affordable or minimum value coverage who receives a premium tax credit to purchase coverage in the Marketplace\/Exchange. This is an increase from the 2025 penalty amount of $4,350 ($362.40 per month).<\/p>\n

2026 Indexed Affordability of Coverage Percentage Amount<\/h3>\n

ALEs may not always be aware of what each employee\u2019s household income is for purposes of calculating the affordability of the health plan for each employee. To resolve this issue, the IRS allows ALEs to calculate the affordability of the health plan based upon certain safe harbors that allow employers to assume that the plan at a certain employee contribution rate is affordable to their employees. The affordability safe harbors are discussed below and apply to an employee\u2019s self-only coverage premium contribution for the lowest-cost plan offered by the employer that provides minimum value (MV).<\/p>\n

The affordability of coverage percentage amounts are indexed for inflation annually, and therefore, ALEs should review their employee premium contributions and whether they are considered affordable under the applicable safe harbor percentage amount annually. In doing so, the ALE helps to protect itself from potential (b) penalties under the Employer Mandate.<\/p>\n

For plan years beginning in 2026, employer-sponsored coverage will be considered affordable for purposes of the employer shared responsibility payment (ESRP) if the employee\u2019s required contribution for self-only coverage under the lowest-cost medical plan option that provides minimum value (MV) does not exceed:<\/p>\n