On May 4, 2026, the Internal Revenue Service (IRS) released Revenue Procedure 2026-22 with updated penalty amounts to the employer shared responsibility (“pay-or-play”) rules under the Affordable Care Act (ACA) for the 2027 calendar year.
The table below captures the updated pay-or-play penalty amounts for the 2027 calendar year, which have increased from the 2026 calendar year penalty amounts.
These penalties can apply to Applicable Large Employers (ALEs), defined as employers who averaged at least 50 or more full-time and/or full-time equivalent employees in the previous calendar year. ALE status is determined based on all related employers and employees within the same controlled group or affiliated services group1.
A full-time employee under the pay-or-play rules is defined as an employee that is expected to average 30 or more hours of service a week or 130 or more hours of service a month.
|
ACA Pay-or-Play Penalties |
2027 |
2026 |
Notes |
|
“A” Penalties §4980H(a)
“sledgehammer” penalty |
$3,780 ($315.00/month) |
$3,340 ($278.33/month) |
Penalty for failing to offer minimum essential coverage to at least 95% of its full-time employees (and their children up to age 26) for any month during the calendar year and at least one employee enrolls in Exchange coverage and receives a premium tax credit.
|
|
“B” Penalties §4980H(b)
“tack hammer” penalty |
$5,670 ($472.50/month)
|
$5,010 ($417.50/month) |
Penalty for failing to offer affordable, minimum value coverage to a full-time employee who enrolls in Exchange coverage and receives a premium tax credit.
|
Under the ACA, employees are generally not eligible for a premium tax credit to buy a qualified health plan through the Exchange, also known as the Health Insurance Marketplace, if they are offered an employer-sponsored medical plan that is considered affordable, minimum value coverage.
To be considered affordable, an employee’s contribution for self-only coverage under the lowest plan cost option available cannot exceed a certain percentage of the employee’s household income. For the 2026 calendar year, that affordability percentage is 9.96%. The affordability percentage for the 2027 calendar year has not yet been released by the IRS.
Minimum value coverage means the plan's share of the total allowed costs of benefits provided to the employee is at least 60% (i.e., at least 60% actuarial value), and the plan provides substantial coverage for inpatient hospital and physician services.
Employers exercise significant control over employee contribution rates and the offer of coverage to full-time employees. Consequently, if an ALE fails to provide coverage to a full-time employee, or fails to offer affordable and minimum value coverage to a full-time employee, and a full-time employee receives a premium tax credit to purchase a health plan through the Exchange, the employer could be subject to the ACA employer pay-or-play penalties outlined in the table above.
Since these newly released pay-or-play penalty amounts are applicable to the 2027 calendar year, there is no immediate action for ALEs right now other than awareness of these amounts for 2027.
ALEs should consider diligently tracking compliance with ACA rules throughout the course of the year to avoid pay-or-play penalties.
On a related note, the IRS also recently released an updated FAQs document in December 2025 related to premium tax credits. This updated FAQs document can serve as a helpful resource to provide to those employees who have general questions regarding premium tax credits intersecting with an offer of coverage under an employer-sponsored group health plan.
Brown & Brown is here to help. Contact us directly here.
[1] Controlled group or affiliated services group definitions under Internal Revenue Code Section 414 generally include parent-subsidiary groups, brother-sister groups, nonprofit organizations under common control, and trades and businesses under common control.