By: HUB’s EB Compliance Team
The IRS recently announced the ACA employer mandate penalties for 2027. Following a significant increase from 2025 to 2026 and a surprise decrease from 2024 to 2025, the penalties will once again increase substantially in 2027. The (a) penalty will be $3,780 (up from $3,340 in 2026), and the (b) penalty will rise to $5,670 (up from $5,010).
Who Pays?
As a reminder, the employer mandate applies to Applicable Large Employers (ALEs), as defined under the ACA. An ALE generally employs an average of 50 or more full-time or full-time equivalent (FTE) employees during the prior calendar year. This definition includes controlled groups, which can make a controlled group member with fewer than 50 employees an ALE. Only employers who are ALEs are subject to the mandate.
An employer’s ALE status is always based on the employee headcount from the prior calendar year unless the employer is new and expects to employ 50 or more FTEs in its first year. Employers moving in or out of ALE status from year to year should be aware of this fluctuation and the possible changes to their healthcare coverage obligations as a result.
The (a) penalty is triggered when an ALE does not offer affordable health coverage to at least 95% of its full-time employees and at least one full-time employee receives a Premium Tax Credit (“PTC”) or subsidy to purchase individual coverage through an ACA public exchange. The penalty applies to the employer’s total headcount, minus the first 30 employees.
In contrast, the (b) penalty applies individually. Specifically, for each month an ALE offers coverage to its full-time employees that is either unaffordable or does not meet minimum value requirements, or does not offer coverage to a full-time employee, and such an employee receives a PTC to purchase individual coverage through an exchange.
Why The Increase?
Under the law, penalty amounts are based on the “premium adjustment percentage”, calculated by HHS to capture the increase in employer-sponsored health insurance premiums since 2014. The original penalty amounts ($2,000 for (a); $3,000 for (b)) are multiplied by that percentage and rounded down to the next $10. For 2027, the projection shows an increase in premiums, leading to penalties rising again.
Conclusion
The 2027 penalty increases underscore the importance of ACA compliance for ALEs. Higher penalties mean greater financial risk for non-compliance, and while the increased affordability threshold gives employers more flexibility in setting employee contributions, miscalculations can still trigger penalties. Ensuring that offers of coverage are compliant remains the most reliable way to avoid ACA penalties.
If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.
NOTICE OF DISCLAIMER
Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.