ACA employer mandate penalties 2027: 4980H(a) and 4980H(b) explained.

• The 2027 4980H(a) penalty is $3,780 per full-time employee per year ($315/month), up from $3,340 in 2026, a 13.2% increase (IRS Revenue Procedure 2026-22).
• The 2027 4980H(b) penalty is $5,670 per full-time employee per year ($472.50/month), up from $5,010 in 2026 (IRS Revenue Procedure 2026-22).
• The 2027 ACA affordability percentage is 10.22%, up from 9.96% in 2026, the first year the figure has exceeded 10% (IRS Revenue Procedure 2026-26).
• The 2027 Federal Poverty Line safe harbor caps a self-only monthly contribution at $135.93 for the mainland United States, up from $129.90 in 2026.
• A Section 125 cafeteria plan changes the tax treatment of an employee's premium contribution but never changes the dollar figure used in the 4980H affordability test.

A 200-employee Applicable Large Employer that fails to offer minimum essential coverage to 95% of its full-time staff in 2027 owes $642,600 for the year under IRC Section 4980H(a), a number set by the IRS in Revenue Procedure 2026-22 and confirmed by benefits counsel at Groom Law Group and Liebert Cassidy Whitmore in the weeks after its May 2026 release. The affordability side of the mandate moved too. Revenue Procedure 2026-26 pushed the 2027 affordability percentage to 10.22% of household income, the first time it has cleared 10% since the ACA's employer mandate took effect. Both changes apply to plan years beginning after December 31, 2026, giving every Applicable Large Employer one open enrollment season to re-run its numbers before the new figures take effect.

Key takeaways

The 2027 ACA employer mandate carries higher dollar penalties and a wider affordability band than any prior year. Applicable Large Employers, meaning any employer that averaged 50 or more full-time employees and full-time equivalents in the prior calendar year, need both numbers to run a compliant offer of coverage for the 2027 plan year. The rest of this guide walks through where each figure comes from, how the penalty math works on a real headcount, and the one Section 125 misconception that trips up otherwise well-run benefits programs.

What is the ACA employer mandate?

The ACA employer mandate, formally the employer shared responsibility provision under IRC Section 4980H, requires an Applicable Large Employer to offer minimum essential coverage to at least 95% of its full-time employees and their dependents, and to make sure that coverage is affordable and provides minimum value. An Applicable Large Employer, or ALE, is any employer that averaged 50 or more full-time employees, counting full-time equivalents built from part-time hours, on business days during the prior calendar year. A full-time employee works at least 30 hours a week or 130 hours a month under the IRS definition. An employer under the 50-FTE threshold carries no 4980H exposure no matter what coverage it offers.

What is the 2027 4980H(a) penalty?

The 4980H(a) penalty applies when an Applicable Large Employer fails to offer minimum essential coverage to at least 95% of its full-time employees and at least one of those employees receives subsidized coverage through a health insurance exchange. For 2027, the penalty is $3,780 per full-time employee per year, or $315 per month, up from $3,340 in 2026. The total penalty is calculated by multiplying $3,780 by the employer's full-time headcount minus the first 30 employees, a subtraction that applies once per controlled group of commonly owned employers, not once per location. The IRS published this figure in Revenue Procedure 2026-22, released in May 2026 and covering plan years beginning after December 31, 2026.

What is the 2027 4980H(b) penalty?

The 4980H(b) penalty applies when an Applicable Large Employer clears the 95% offer requirement but the coverage offered to a specific full-time employee was unaffordable, did not provide minimum value, or was never offered to that individual employee, and that employee receives subsidized exchange coverage as a result. For 2027, the penalty is $5,670 per affected employee per year, or $472.50 per month, up from $5,010 in 2026. The total 4980H(b) penalty is calculated only against the employees who actually received subsidized coverage, not the full workforce, and the total is capped at what the employer would have owed under 4980H(a) if it had failed the offer test entirely.

Both penalties are mutually exclusive for a given employer in a given year. An employer failing the 95% offer test only ever owes 4980H(a), since the whole workforce is treated as uncovered. An employer that clears the 95% threshold moves entirely into 4980H(b) exposure, assessed only against the specific employees whose coverage was not affordable.

What is the 2027 ACA affordability percentage?

The 2027 ACA affordability percentage is 10.22% of household income, up from 9.96% in 2026, under IRS Revenue Procedure 2026-26. An offer of coverage counts as affordable when the employee's required contribution for the lowest-cost self-only plan the employer offers does not exceed 10.22% of the employee's household income for the year, or one of three IRS- approved safe harbors that estimate household income without requiring the employer to ask for it directly. This is the first year since the ACA's employer mandate began that the affordability percentage has exceeded 10%, a threshold benefits attorneys at Mercer and Sequoia both flagged as notable in their July and August 2026 client alerts.

Most Applicable Large Employers use the Federal Poverty Line safe harbor rather than calculating actual household income, since it is the simplest of the three IRS-approved methods and does not require the employer to know anything about an employee's household finances. For 2027 calendar-year plans, the FPL safe harbor caps the employee's monthly required contribution for self-only coverage at $135.93 for the 48 contiguous states and Washington D.C. Alaska's higher poverty guideline sets its own 2027 figure at $169.91 and Hawaii's at $156.37. An employer relying on the FPL safe harbor for a calendar-year plan can use the 2026 federal poverty guidelines to set 2027 contribution limits, since the IRS permits using the poverty guidelines in effect within six months of the first day of the plan year.

Does a Section 125 plan lower the affordability number?

No, and this is the single most common mistake HR teams make when they combine a Section 125 cafeteria plan with ACA affordability testing. The 4980H affordability test compares the stated dollar amount of the employee's required contribution, meaning the amount deducted from pay for the lowest-cost self-only plan, to the 10.22% threshold for 2027. That comparison runs on the nominal dollar figure of the contribution, not on the employee's after-tax cost of making it. A $150 monthly required contribution is tested as $150 whether it comes out of pay before or after federal income tax and FICA are calculated. Routing the same $150 through a Section 125 cafeteria plan→ lowers what the employee actually pays in tax and captures employer FICA recapture, but it does not shrink the $150 figure the IRS compares to household income under 4980H.

How is the 2027 penalty calculated for a real employer?

Consider a single-employer Applicable Large Employer with 200 full-time employees that offers no group health plan at all in 2027 and has at least one employee receive subsidized exchange coverage. The 4980H(a) penalty is $3,780 multiplied by 170, which is the 200-employee headcount minus the standard 30-employee reduction, for a total annual penalty of $642,600. The same employer that instead offers coverage to 96% of its workforce but sets the self-only employee contribution at $220 per month, above the $135.93 FPL safe harbor and above 10.22% of income for its lower-wage staff, moves into 4980H(b) exposure instead. If 12 of those employees receive subsidized exchange coverage as a result, the 4980H(b) penalty is $5,670 multiplied by 12, for a total of $68,040 for the year, well under the $642,600 the 4980H(a) exposure would have carried on the full headcount.

How can an employer avoid ACA employer mandate penalties in 2027?

1. Confirm ALE status for 2027. Count full-time employees plus full-time equivalents built from part-time hours across every month of 2026. An employer that averaged 50 or more crosses into Applicable Large Employer status for 2027 regardless of current headcount.
2. Offer minimum essential coverage to at least 95% of full-time employees. This clears 4980H(a) exposure entirely and moves any remaining risk to the narrower, per-employee 4980H(b) penalty.
3. Re-run the affordability test at 10.22% for every rating area. A contribution amount that was affordable at the 2026 percentage of 9.96% can fail at 10.22% if wages did not rise by a comparable margin, so the test needs a fresh calculation, not a copy of last year's number.
4. Set the self-only contribution against the FPL safe harbor where practical. Capping the lowest-cost self-only plan's employee contribution at $135.93 per month for 2027 mainland employees satisfies affordability without needing any household income data at all.
5. Layer a Section 125 cafeteria plan on top of the affordable offer. Once the contribution amount itself is affordable, running it pre-tax through a Section 125 plan→ recaptures 7.65% of employer FICA on every enrolled dollar and raises employee take-home pay on the same coverage, at no cost to mandate compliance.
6. File Forms 1094-C and 1095-C accurately and on time. The IRS uses these filings, not a self-reported audit, to identify 4980H exposure and issue Letter 226-J proposed assessments, so filing errors create penalty risk independent of the actual offer of coverage.

Does an ICHRA satisfy the mandate at the 2027 percentage?

Yes, when the allowance clears the new threshold. An Individual Coverage Health Reimbursement Arrangement→ satisfies the ACA employer mandate for an Applicable Large Employer when the employee's net premium cost, the lowest-cost silver plan in the employee's rating area minus the monthly ICHRA allowance, does not exceed 10.22% of household income for 2027. Because silver plan premiums vary by rating area and age, an ICHRA allowance that was affordable in 2026 needs a fresh comparison against 2027 premiums and the higher percentage before the plan year begins, run separately for every rating area where the employer has employees. An ICHRA allowance, like a group plan's employee contribution, is tested on its stated dollar value regardless of whether a Section 125 wrap→ makes the employee's above-allowance share pre-tax.