How the (b) Penalty Is Capped
The 4980H(b) payment applies only to the specific full-time employees who receive a subsidy, and the total can never exceed what the (a) payment would have been.
The three things to know.
What Triggers It
The employer offered coverage to at least 95% of full-time employees, but the coverage for a particular employee was not affordable or did not provide minimum value, and that employee received a premium tax credit.
A Worked Example
Ten subsidized employees in 2027 means 10 × $5,670 = $56,700. The 2027 annual amount under Rev. Proc. 2026-22 is $5,670 per employee.
The Cap
The (b) total can never exceed the (a) amount computed on the full-time headcount, so a large group with few subsidized employees pays far less than under (a).
Sources: 26 CFR § 54.4980H-5; 26 U.S.C. § 4980H. General information, not legal advice.
A worked example.
Three Subsidized Employees
An employer offers coverage to 98% of its full-time employees, but the employee share for three of them was above the affordability line, and those three receive premium tax credits.
What the Rule Produces
The (a) payment does not apply because the 95% test is met. The (b) payment applies for the three subsidized employees only: 3 × $5,670 = $17,010 for 2027. The total can never exceed what the (a) payment would have been.
Four steps to apply it.
1. Test affordability
Use a safe harbor for each full-time employee.
2. Check minimum value
Confirm the plan meets it.
3. Find exposure
Identify who might be subsidized.
4. Adjust contributions
Bring contributions within the line for 2027.
Where it goes wrong. Using one affordability number for everyone when the lowest-cost self-only option differs by location or class.
The questions that come up next.
What counts as affordable?
Self-only coverage is affordable if the employee’s share of the lowest-cost option does not exceed 9.96% of income for 2026 or 10.22% for 2027, measured with a safe harbor.
How does an employer know who got a subsidy?
The IRS tells employers through letters after reviewing Marketplace data and employer filings.
What is the 2026 amount?
$5,010 per employee, under Rev. Proc. 2025-26.
Is the calculation per employee?
Yes. It applies only to full-time employees who receive a subsidy.
How do we learn about a payment?
Through an IRS letter after it reviews filings and Marketplace data.
Plan-specific questions belong with ERISA counsel, and we will bring them in.
Related pages on the look-back method.
What the Forms Capture
For each full-time employee and each month, Forms 1094-C and 1095-C report whether an offer of coverage was made, what it cost the employee, and which relief applies.
Furnishing and Filing
Instead of mailing every 1095-C, an employer may post a notice that employees can request one, up by March 2 and kept through October 15, and furnish a requested form within 30 days.
The Full Look-Back Guide
Every rule, example and source behind this page, in one place.
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