Under the ACA, applicable large employers (ALEs) are companies with 50 or more full-time equivalent employees. Two penalty structures apply when coverage obligations are not met.
The first applies when an ALE fails to offer minimum essential coverage to at least 95 percent of its full-time employees and their dependents. For 2026, that penalty is:
$3,340 per full-time employee (excluding the first 30)
The second applies when coverage is offered but is unaffordable or does not meet minimum value, and at least one full-time employee obtains subsidized coverage through the marketplace. For 2026, that penalty is:
$5,010 per affected employee
Those figures represent increases of $440 and $660 respectively over 2025 levels. Penalties are assessed for the full prior tax year, which means decisions made about 2025 coverage are being reviewed right now.
**Where Most Employers Actually Run Into Trouble**
The majority of ACA penalties do not stem from a deliberate decision to skip coverage. They come from operational gaps that go unnoticed until an IRS Letter 226-J arrives. The most common sources of exposure include:
- Eligibility tracking errors that cause late or missed coverage offers
- Affordability safe harbor miscalculations based on payroll data that does not sync correctly with HR records
- Incomplete or inaccurate Forms 1094-C and 1095-C
- Employees who move between full-time and part-time status during measurement periods without being tracked correctly
The affordability threshold for 2025 plan years is 9.02 percent of household income. Employers using the rate of pay safe harbor need to confirm their payroll data reflects actual wages used in that calculation.
In addition to ACA penalties, the DOL's Employee Benefits Security Administration announced on January 15, 2026, that health and welfare plan enforcement is among its top priorities for fiscal year 2026. Specific focus areas include mental health parity, claims processing practices, and the handling of employee contributions. Plan sponsors who have not conducted a recent review of their benefits administration practices are operating without visibility into where their exposure sits.
**The Payroll and HR Data Connection**
ACA compliance is not a standalone HR function. It depends directly on the accuracy and consistency of payroll data, HRIS records, and benefits administration systems. When those systems are not synchronized, the reporting errors that trigger penalties tend to be invisible until the IRS flags them.
For business owners managing payroll and benefits in-house, the administrative burden of staying current on measurement periods, offer deadlines, and reporting requirements is substantial. This is one of the clearest cases where HR outsourcing or working with a professional employer organization provides measurable value. A PEO handles eligibility tracking, benefits administration, and ACA reporting as part of its core function, and the cost of that support is typically far less than a single penalty assessment.
Businesses that are not quite large enough to qualify as ALEs should not assume they are entirely off the hook. The DOL's health plan enforcement priorities apply to any employer sponsoring a group health plan, and mental health parity requirements extend to non-ALE employers who offer mental health and substance use disorder benefits alongside medical and surgical coverage.
*If you have not confirmed your 2025 ACA affordability calculations and reviewed your Form 1094-C and 1095-C filings for accuracy, do that before the IRS begins issuing Letter 226-J notices for the 2025 plan year.*
