# Employer mandate penalty calculator for 2026 and 2027

Source: https://www.getprescience.com/tools/employer-mandate-penalty-calculator
Author: Rishab Jain, Cofounder and CEO, Prescience
Published: 2026-10-26
Updated: 2026-10-26
Cite as: Rishab Jain. "Employer mandate penalty calculator for 2026 and 2027." Prescience, October 26, 2026. https://www.getprescience.com/tools/employer-mandate-penalty-calculator

Companies with 50 or more full-time employees, including equivalents, owe a penalty under Section 4980H if they don't offer affordable, minimum-value coverage and a full-time employee gets a marketplace subsidy. In 2027 the "A" penalty is $3,780 a year for every full-time employee after the first 30, and the "B" penalty is $5,670 for each subsidized employee, capped at the A amount. Enter your headcount to see which penalty applies and what it could cost.

- **2027 A penalty:** $3,780 per full-time employee, minus 30
- **2027 B penalty:** $5,670 per subsidized employee
- **2026 A / B:** $3,340 / $5,010
- **Who it applies to:** 50+ full-time employees and FTEs

## Estimate your 4980H penalty

_Interactive calculator: open the page in a browser to use it. The rules and figures it applies follow._

The calculator uses the IRS amounts for each year and assumes your headcount and offer stay the same for all twelve months. The IRS actually works the penalty out month by month, at one-twelfth of the annual amount, so a company that started offering coverage in April or grew past 50 mid-year will owe less than a full year.

## The two employer mandate penalties

The employer mandate, formally the employer shared responsibility provision, has two separate penalties. Which one you face depends on whether you offer coverage to almost everyone.

**4980H penalty amounts by year**

|  | 2026 | 2027 | Who it counts |
| --- | --- | --- | --- |
| 4980H(a): no offer | $3,340 a year ($278.33 a month) | $3,780 a year ($315 a month) | Every full-time employee, minus 30 |
| 4980H(b): offer not affordable or not minimum value | $5,010 a year ($417.50 a month) | $5,670 a year ($472.50 a month) | Only full-time employees who get a subsidy |

- **The A penalty** applies when you don't offer coverage to at least 95% of full-time employees and their children up to age 26, and at least one full-time employee buys a marketplace plan with a premium tax credit. It's charged on your whole full-time workforce, minus 30, even if only one person got a subsidy.
- **The B penalty** applies when you do offer coverage to 95%, but it isn't affordable or doesn't provide minimum value for some employees, and those employees get a premium tax credit. It's charged only for those employees, and it can never exceed what the A penalty would have been.

Part-time employees count toward whether you're an applicable large employer, but they don't count in either penalty. Neither do employees who turn down an affordable offer, or employees who don't qualify for a subsidy because their household income is too high or they're on a spouse's plan.

## Worked examples

**60 full-time employees and no plan, 2027**

Illustrative. A company with 60 full-time employees offers no health coverage in 2027. One employee buys a marketplace plan and qualifies for a premium tax credit.

- Full-time employees: 60
- Less the first 30: 30
- Annual A penalty per employee: $3,780
- Penalty for the year: 30 × $3,780 = $113,400

**$113,400 a year,** triggered by a single subsidized employee. A plan covering everyone usually costs more than this, which is why some large employers pay it; but it isn't tax-deductible, and it buys employees nothing.

**The same company with a plan that isn't affordable for some**

Illustrative. The company now offers a plan to everyone, but its cheapest self-only option costs more than 10.22% of pay for its four lowest-paid employees, who all get premium tax credits.

- Subsidized full-time employees: 4
- Annual B penalty per employee: $5,670
- B penalty: 4 × $5,670 = $22,680
- Cap (the A amount): $113,400

**$22,680 a year.** Lowering those four employees' share below the affordability limit would remove it. The [ACA affordability calculator](https://www.getprescience.com/tools/aca-affordability-calculator) shows the most you can charge.

## Does the employer mandate apply to you?

The mandate applies only to applicable large employers (ALEs): companies that averaged at least 50 full-time employees, counting full-time equivalents, across the prior calendar year. A company with 40 full-time employees and enough part-time hours to make 12 more equivalents is an ALE. Companies under common ownership are counted together as a controlled group.

If you're close to 50, run last year's numbers through the [ALE calculator](https://www.getprescience.com/tools/ale-calculator) first. A company that becomes an ALE for 2027 based on its 2026 workforce has to offer coverage from January 1, 2027, or face the penalties from that month.

> **Controlled groups share the 30-employee reduction:** When several related companies make up one ALE, the 30-employee reduction in the A penalty is split among them in proportion to their full-time headcount. Each company is liable only for its own penalty, but the reduction doesn't multiply.

## How to avoid the penalty

1. **Offer coverage to at least 95% of full-time employees** Include their children up to age 26. Spouses don't have to be offered coverage. Meeting the 95% test removes the A penalty entirely.
2. **Make sure the plan provides minimum value** The plan has to pay at least 60% of covered costs and include substantial hospital and physician coverage. Most group plans do; skinny plans often don't.
3. **Keep the cheapest self-only option affordable** In 2027 the employee's share can't exceed 10.22% of pay under one of the three IRS safe harbors (9.96% in 2026). Using the federal poverty line safe harbor, that's $135.92 a month in 2027.
4. **Report it on Forms 1094-C and 1095-C** The IRS assesses penalties from these forms. A correct 1095-C showing an affordable offer is your evidence that no penalty is owed.
5. **Answer any Letter 226-J promptly** The IRS proposes penalties by letter, often two or more years after the fact. You have a short window to respond with corrections, such as employees who were part-time or offered coverage.

An individual coverage HRA (ICHRA) can also satisfy the mandate, as long as the allowance makes the lowest-cost silver plan affordable for each full-time employee. Our [ICHRA affordability calculator](https://www.getprescience.com/tools/ichra-affordability-calculator) works out the minimum allowance.

> **Prescience Choice: ICHRA for $20 per enrolled employee per month.** Choice is an ICHRA at $20 per enrolled employee per month, with allowances set by class, so you can meet the mandate with a fixed budget.
> - **You set a monthly allowance;** each employee picks and owns an individual plan
> - **$20 per enrolled employee per month,** with no setup or platform fee
> - **Works in all 50 states and DC,** so remote and multi-state teams fit
> - **Plan comparison, enrollment help and Crystal,** our assistant for benefits questions
> Best for small teams, teams in several states, and anyone pricing ICHRA. [Get a Choice quote](https://www.getprescience.com/employer/choice)

## When penalties arrive and what they cost after tax

Penalties aren't paid with your tax return. The IRS matches your 1095-C forms against marketplace subsidy records and sends Letter 226-J with a proposed amount, usually more than a year after the year closes. The letter lists every employee who got a subsidy, by month, and gives you a deadline to respond.

Unlike premiums, 4980H penalties aren't tax-deductible. A $113,400 penalty costs $113,400 after tax, while $113,400 spent on employer premiums is deductible and tax-free to employees. When a founder tells me it's cheaper to pay the penalty, I ask them to compare after-tax numbers and recruiting costs before deciding.

## How the IRS works it out month by month

The penalty is assessed for each calendar month, at one-twelfth of the annual amount, using that month's full-time headcount and that month's subsidized employees. A company that offers coverage for part of the year owes only for the months it didn't, and a month in which no full-time employee had a subsidy costs nothing.

**Coverage that starts in April**

Illustrative. A 2027 ALE with 60 full-time employees has no plan in January through March, then offers affordable, minimum-value coverage from April 1. One employee had a marketplace subsidy in each of the first three months.

- Monthly A amount: $3,780 ÷ 12 = $315
- Each month without an offer: 30 × $315 = $9,450
- January to March: 3 × $9,450 = $28,350
- April to December: $0

**$28,350 instead of $113,400.** Starting coverage mid-year still cuts the exposure by three quarters.

New full-time hires also have a grace period. An ALE isn't penalized for a new full-time employee during their first three full calendar months, as long as coverage is offered by the first day of the fourth. Variable-hour employees can be measured over a look-back period of up to 12 months before you decide whether they're full-time.

## Meeting the mandate with Prescience

Both Prescience plans can satisfy the mandate when they're offered to full-time employees and priced within the affordability limit. Diamond is a group plan with an effective $0 deductible; Choice is an ICHRA where you set the allowance.

> **Prescience Diamond: A company health plan with an effective $0 deductible.** Diamond is a minimum-value group plan, so offering it affordably to 95% of full-time staff takes both penalties off the table.
> - **An effective $0 deductible** and simple copays shown before a visit
> - **A broad national PPO network,** plus providers we contract with directly
> - **24/7 physician-led care navigation** that books visits and explains costs
> - **Usually 10–20% below comparable fully insured coverage,** fixed in your quote, with no admin fees
> Best for teams of about 15 or more that want one great group plan. [Get a Diamond quote](https://www.getprescience.com/get-started?p=Employer&product=diamond)

## Frequently asked questions

**What is the employer mandate penalty for 2027?**

$3,780 a year per full-time employee after the first 30 if you don't offer coverage (4980H(a)), or $5,670 per subsidized full-time employee if your offer isn't affordable or minimum value (4980H(b)), per IRS Revenue Procedure 2026-22.

**What is the employer mandate penalty for 2026?**

$3,340 per full-time employee after the first 30 under 4980H(a), and $5,010 per subsidized full-time employee under 4980H(b), per IRS Revenue Procedure 2025-26.

**Do part-time employees count in the penalty?**

No. Part-time hours count toward whether you have 50 full-time equivalents, but the penalties are calculated on full-time employees only.

**What triggers the employer mandate penalty?**

At least one full-time employee buying a marketplace plan and receiving a premium tax credit. If no full-time employee gets a subsidy, no penalty is owed, even without a plan.

**Can the B penalty be more than the A penalty?**

No. The B penalty is capped at the amount the A penalty would have been for the same month.

**Is the employer mandate penalty tax-deductible?**

No. 4980H assessable payments are not deductible, unlike premiums the company pays for coverage.

**Does an ICHRA satisfy the employer mandate?**

Yes, if it's offered to at least 95% of full-time employees and the allowance makes the lowest-cost silver plan affordable for them under an IRS safe harbor.

## Sources

- [IRS, Questions and answers on employer shared responsibility provisions](https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-employer-shared-responsibility-provisions-under-the-affordable-care-act)
- [IRS Revenue Procedure 2025-26 (2026 employer shared responsibility amounts)](https://www.irs.gov/pub/irs-drop/rp-25-26.pdf)
- [IRS Revenue Procedure 2026-22 (2027 employer mandate penalties)](https://www.irs.gov/pub/irs-drop/rp-26-22.pdf)
- [IRS Revenue Procedure 2026-26 (2027 affordability percentage)](https://www.irs.gov/pub/irs-drop/rp-26-26.pdf)
- [26 CFR 54.4980H-5, assessable payments and affordability safe harbors](https://www.ecfr.gov/current/title-26/section-54.4980H-5)
- [IRS, Information reporting by applicable large employers (Forms 1094-C and 1095-C)](https://www.irs.gov/affordable-care-act/employers/information-reporting-by-applicable-large-employers)