IRS Releases ACA Pay-or-Play Penalties for 2027

On May 4, 2026, the IRS released updated penalty amounts for 2027 related to the employer shared responsibility (“pay-or-play”) rules under the Affordable Care Act (ACA). For calendar year 2027, the adjusted $2,000 penalty amount is $3,780, and the adjusted $3,000 penalty amount is $5,670. This is an increase from the penalty amounts for the 2026 calendar year, which are $3,340 and $5,010, respectively.

Pay-or-Play Rules

The ACA requires applicable large employers (ALEs) to offer affordable, minimum-value (MV) health coverage to their full-time employees (and dependents) or potentially pay a penalty to the IRS. An ALE is an employer with at least 50 full-time employees, including full-time equivalent employees, during the preceding calendar year.

An ALE may be subject to a pay-or-play penalty if at least one full-time employee receives a premium tax credit for purchasing individual health coverage through an Exchange and the ALE:

Did not offer health plan coverage to “substantially all” (generally, at least 95%) of full-time employees and their dependents;
Offered health plan coverage to substantially all full-time employees, but not to the specific full-time employee receiving the credit; or
Offered health plan coverage to full-time employees that was unaffordable or did not provide MV.

Pay-or-Play Penalty Calculations

Depending on the circumstances, one of two penalties may apply under the pay-or-play rules, the 4980H(a) penalty or the 4980H(b) penalty, as follows:

Under Section 4980H(a), an ALE is subject to a penalty if it does not offer coverage to substantially all of its full-time employees (and dependents) and any one of its full-time employees receives a subsidy toward their Exchange plan. This monthly penalty is equal to the ALE’s number of full-time employees (minus 30) multiplied by one-twelfth of $2,000 (as adjusted) for any applicable month. For 2027, the adjusted penalty amount is $3,780; or
Under Section 4980H(b), ALEs that offer coverage to substantially all full-time employees (and dependents) may still be subject to a penalty if at least one full-time employee obtains a subsidy through an Exchange because the ALE did not offer coverage to all full-time employees, or the ALE’s coverage is unaffordable or does not provide MV. The monthly penalty assessed on an ALE for each full-time employee who receives a subsidy is one-twelfth of $3,000 (as adjusted) for any applicable month. For 2027, the adjusted penalty amount is $5,670. However, the total penalty for an ALE is limited to the 4980H(a) penalty amount.

This Legal Update is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. © 2026 Zywave, Inc. All rights reserved.