ALE Penalties Increased for 2026

On July 22, 2025, the IRS announced that ALE penalties will increase over 15% for 2026.

Applies To:

Applicable large employers (ALEs) with 50+ full-time and equivalent employees in the prior calendar year (including related employers under common ownership or control who must combine their employee counts).

Go Deeper:

The Affordable Care Act (ACA) subjects ALEs to potential employer shared responsibility penalties (ESRP) under §4980H rules when they do not offer affordable, minimum value coverage to full-time (FT) employees (and their dependents to the end of the month they turn 26). There is no requirement to offer coverage to spouses.

• Full-time is defined as those with 30 or more hours of service per week, which equates to 130 hours in a calendar month (30 hours per week × 52 weeks ÷ 12 months = 130 hours per month).
• Hours of service include all hours which are or should be paid, including paid time off.
  

 Table of the ALE Penalties for 2024, 2025, and 2026: 

§4980H(a) penalties can be avoided each month the ALE offers medical coverage to at least 95% of their full-time employees and their dependents (not required to offer to spouses).

• For an ALE with 100 full-time employees, offering to 95% of full-time employees would mean offering coverage to all but 5 full-time employees (and their dependents).
• Employees not in a regular full-time position may be deemed full-time for a month if their hours hit 130 in the calendar month, and seasonal full-time typically are deemed full-time under these rules.
• For any month the ALE fails this requirement, any one full-time employee who buys public Exchange/ Marketplace coverage with a tax credit will trigger the §4980H(a) penalty for all full-time employees less the ALE’s allocable share of 30 employees (the 30-employee reduction is shared among ALE members in a controlled group or affiliated service group).
• For any month the ALE meets this requirement, the potential penalty under §4980H(a) serves as a cap for the potential penalties under §4980H(b).
  
  

• ALE coverage only needs to be affordable on the lowest-cost single plan providing minimum value. Other plan options the employer might provide do not have to be affordable, and dependent tiers do not have to be affordable.
• If the employer is meeting the requirements to avoid the §4980H(a) penalty, then a full-time employee who waives coverage that is not affordable and minimum value to buy public Exchange/ Marketplace coverage with a tax credit will trigger the §4980H(b) penalty, which is only assessable on that specific employee for that specific month.
• Often, an ALE’s coverage will be affordable for most employees earning a certain rate of pay, but unaffordable for those full-time employees earning less. So, while the dollar amount of the penalty is larger than that charged under §4980H(a), it is typically multiplied by a much smaller number of full-time employees.

ALEs self-report on forms 1094-C and 1095-C which employees are full-time, the offers made to each one, and whether the coverage offered was affordable and minimum value. The IRS then reconciles those reports with public Exchange Marketplace tax credits paid out to determine which ALEs to send ESRP letters to, approximately two years later.

Practical Impact to Employers:

An ALE wanting to avoid employer shared responsibility penalties needs to ensure they are properly identifying full-time employees throughout the year and offering affordable, minimum value coverage to them. The potential penalties are increasing substantially (over 15% in just one year).  So, it is becoming more important to closely monitor full-time status to identify everyone that should be offered coverage, and close affordability gaps.