On May 4, 2026, the IRS announced updated penalty amounts for 2027 under the Affordable Care Act’s (ACA) employer shared responsibility, or “pay-or-play,” rules. For the 2027 calendar year, the $2,000 penalty has been adjusted to $3,780, and the $3,000 penalty has increased to $5,670. This marks a rise from 2026 levels of $3,340 and $5,010, respectively.
Understanding Pay-or-Play Requirements
The ACA requires applicable large employers (ALEs)—those with 50 or more full-time and full-time equivalent employees—to offer affordable, minimum value (MV) health coverage to full-time employees and their dependents. Employers that fail to meet these requirements may face IRS penalties if at least one employee receives a premium tax credit through a Health Insurance Marketplace.
Penalties may apply if an ALE:
- Fails to offer coverage to at least 95% of full-time employees and their dependents;
- Offers coverage to most employees but not to a specific individual who receives a subsidy; or
- Offers coverage that is unaffordable or does not meet minimum value standards.
How the Penalties Work
There are two potential penalties under the pay-or-play rules:
- Section 4980H(a): Applies when an ALE does not offer coverage to substantially all full-time employees. If at least one employee receives subsidized coverage through the Marketplace, the employer pays a monthly penalty based on total full-time employees, minus 30. For 2027, this penalty is calculated using the adjusted annual amount of $3,780.
- Section 4980H(b): Applies when an ALE offers coverage to most employees but fails to meet affordability or minimum value requirements, or excludes certain employees. The penalty is assessed monthly for each full-time employee who receives a subsidy. For 2027, this amount is $5,670 annually. However, the total penalty cannot exceed the 4980H(a) maximum.
With rising penalty amounts, it’s more important than ever for employers to review their health coverage offerings to ensure compliance and avoid unnecessary costs.
