If your business averaged 50 or more full-time employees last year, the Affordable Care Act requires you to offer health coverage that meets federal minimum value and affordability standards to at least 95 percent of your full-time workforce and their dependents, and to report those offers to the IRS each year on Forms 1094-C and 1095-C. Fall short and the IRS can assess penalties of $3,340 or $5,010 per employee for the 2026 plan year, plus separate fines for late or inaccurate filings. The ACA requirements for employers described below apply for the entire calendar year once you cross the 50-employee threshold.
Who Has to Comply
The employer mandate under Internal Revenue Code Section 4980H reaches any business or nonprofit that employed an average of at least 50 full-time employees during the prior calendar year. A full-time employee is anyone averaging at least 30 hours of service per week, or 130 hours in a calendar month.1Office of the Law Revision Counsel. 26 US Code 4980H – Shared Responsibility for Employers Regarding Health Coverage
Part-time staff count too, through a full-time equivalent calculation. Add up all part-time hours worked in a month and divide by 120. That figure, plus your actual full-time headcount, gives you the monthly total. Average those 12 monthly totals for the prior year. If the result hits 50, you’re an applicable large employer for the current year.
Related Businesses Get Combined
Companies that share common ownership or fall within a controlled group under Section 414 must combine their employee counts when testing the 50-employee threshold.2Internal Revenue Service. Determining if an Employer Is an Applicable Large Employer Two 30-employee companies owned by the same person are treated as a single 60-employee employer. Each entity in the group is then an “ALE member” and must independently meet the coverage rules, even if it would have been too small on its own. Splitting operations across multiple LLCs doesn’t get you out. Government entities apply a separate good-faith standard because the usual ownership tests don’t fit public structures.
What Coverage You Have to Offer
An applicable large employer must offer minimum essential coverage providing “minimum value” to at least 95 percent of its full-time employees and their dependents.3Internal Revenue Service. Employer Shared Responsibility Provisions Minimum value means the plan pays at least 60 percent of the total expected cost of covered benefits and includes substantial coverage for hospital stays and physician services.4Internal Revenue Service. Minimum Value and Affordability A plan covering only preventive care won’t qualify.
The 95 percent line is unforgiving. Offer coverage to 94 percent of full-time staff, let one uncovered worker get a premium tax credit through the Marketplace, and the penalty is calculated against your entire full-time headcount. That single percentage point can cost hundreds of thousands of dollars a year.
The 2026 Affordability Threshold
Offering a plan isn’t enough if employees can’t afford it. For plan years beginning in 2026, coverage is affordable when an employee’s share of the premium for the lowest-cost self-only option doesn’t exceed 9.96 percent of household income.5Internal Revenue Service. Rev Proc 2025-25 That’s up from 8.39 percent for 2024, giving employers more room on employee contributions.
Because you don’t know an employee’s household income, the IRS lets you use one of three safe harbors:
- W-2 safe harbor: the monthly employee premium for the lowest-cost self-only plan is no more than 9.96 percent of the employee’s W-2 Box 1 wages for the year.
- Rate of pay safe harbor: the monthly premium is no more than 9.96 percent of the employee’s monthly wages, figured as 130 hours times the hourly rate (or monthly salary for salaried workers).
- Federal poverty line safe harbor: the monthly premium is no more than 9.96 percent of the single-person federal poverty line divided by 12. For 2026, that works out to $129.89 per month in the 48 contiguous states.
The federal poverty line safe harbor is the most conservative because it uses a flat dollar figure. Charge no more than $129.89 a month for the lowest-cost self-only plan and you pass the affordability test for every employee, regardless of what any of them earn.
Penalties for Coverage Failures
Penalties come in two forms, and the difference in dollar exposure is substantial.
Not Offering Coverage: Section 4980H(a)
If you fail to offer minimum essential coverage to at least 95 percent of full-time employees and their dependents, and at least one full-time worker receives a premium tax credit through the Marketplace, the penalty is $3,340 per year for each full-time employee.3Internal Revenue Service. Employer Shared Responsibility Provisions The first 30 employees are excluded, but the fine applies against the rest of your entire full-time workforce, not just those who went to the Marketplace. For a 200-employee company, that’s (200 − 30) × $3,340, or $567,800 in a single year.
Offering Inadequate or Unaffordable Coverage: Section 4980H(b)
If you do offer coverage to at least 95 percent of your workforce but the plan either flunks minimum value or isn’t affordable, the penalty is $5,010 per year for each full-time employee who actually receives a premium tax credit.3Internal Revenue Service. Employer Shared Responsibility Provisions This one hits only the subsidized workers, not the whole headcount, and it’s capped so it can never exceed what you’d have owed under 4980H(a).
Both penalties are assessed monthly, at one-twelfth of the annual amount for each month a violation applies. Fixing a coverage gap partway through the year reduces the bill.
Reporting: Forms 1094-C and 1095-C
Every applicable large employer files two forms with the IRS each year to document its coverage offers.
Form 1095-C records the specific coverage offered to each full-time employee month by month.6Internal Revenue Service. About Form 1095-C, Employer-Provided Health Insurance Offer and Coverage Each form carries the employee’s name, Social Security number, and address, plus coded entries showing what was offered, whether the employee enrolled, and whether the plan cleared the affordability bar. The offer codes matter. Code 1A, for example, indicates a qualifying offer of affordable minimum-value coverage to the employee, spouse, and dependents.7Internal Revenue Service. Form 1095-C – Employer-Provided Health Insurance Offer and Coverage Picking the wrong code can generate a penalty notice even when the actual coverage was fine.
Form 1094-C is the transmittal that goes with the batch of 1095-Cs. It summarizes how many forms you’re submitting, identifies your contact person, and reports whether you offered coverage to at least 95 percent of the workforce each month. The IRS uses automated matching to compare 1095-C data against individual tax returns, which is how it catches employees who took Marketplace subsidies while their employer was supposed to be covering them.
Any employer filing 10 or more information returns of any kind during the year must file electronically. That threshold replaced the old 250-return cutoff, so nearly every applicable large employer must e-file. Electronic returns go through the ACA Information Returns (AIR) system.8Internal Revenue Service. Who Must File Information Returns Electronically
Deadlines and the Website-Notice Option
For the 2026 tax year, Forms 1094-C and 1095-C must be filed electronically with the IRS by March 31, 2027. If that date lands on a weekend or holiday, the deadline moves to the next business day.
Getting Form 1095-C to employees changed starting with tax year 2024. You no longer have to automatically mail every full-time worker a copy. Under the Employer Reporting Improvement Act, posting a clear, conspicuous notice on your company website telling employees they can request a copy will satisfy the furnishing requirement.9Internal Revenue Service. Instructions for Forms 1094-C and 1095-C The notice needs a phone number, email address, and physical mailing address.
Three conditions apply when you use the website method:
- Post the notice by early March of the year after the coverage year and keep it up through mid-October.
- When an employee requests their form, provide it within 30 days of the request or by January 31 of the filing year, whichever is later.
- Write the notice in plain, non-technical language, sized to catch attention. The IRS gives the example of a “Tax Information” link on your main page leading to a page headed “IMPORTANT HEALTH COVERAGE TAX DOCUMENTS.”
Mailing forms directly is still fine if you prefer the old way. The website-notice route just eliminates the cost of mailing forms to employees who often don’t need them for their personal returns.
Penalties for Late or Incorrect Filings
Separate from the coverage penalties, Section 6721 fines apply when information returns are filed late or with errors. For returns due in 2026, the rate scales with how late you are:10Internal Revenue Service. Information Return Penalties
- Filed within 30 days of the deadline: $60 per return.
- Filed after 30 days but by August 1: $130 per return.
- Filed after August 1 or not filed at all: $340 per return.
- Intentional disregard: $680 per return, with no maximum.
For businesses averaging more than $5 million in annual gross receipts, the annual cap runs from $683,000 at the earliest correction tier up to $4,098,500 for returns filed after August 1.11Internal Revenue Service. 20.1.7 Information Return Penalties Smaller businesses get lower caps. Intentional disregard, which the IRS defines as knowingly filing false information or ignoring the requirement entirely, has no ceiling at all.
Keep digital copies of every transmission confirmation. If a batch gets rejected, the penalty clock keeps running, so a quick correction and resubmission is worth the effort.