26 U.S.C. § 4980H
Section 4980H is the statute behind the ACA employer shared responsibility payments. It sets the two payments, the 95% offer test and the 30-employee reduction.
What it says and why it matters.
Payment (a): No Offer
Applies when an applicable large employer does not offer minimum essential coverage to at least 95% of its full-time employees and their dependents, and at least one full-time employee receives a premium tax credit.
Payment (b): Unaffordable or Inadequate Coverage
Applies for each full-time employee who receives a premium tax credit because the offered coverage was unaffordable or did not provide minimum value, and is capped at the amount of the (a) payment.
Indexed Every Year
The statute’s base amounts of $2,000 and $3,000 are indexed each year through IRS revenue procedures, which is why the dollar figures change.
Primary source: 26 U.S.C. § 4980H. General information, not legal advice.
A worked example.
Reading the Statute Against Your Workforce
An employer with 130 full-time employees offers coverage to 120 of them in 2027, an offer rate of about 92%, and one uncovered employee receives a premium tax credit.
What the Rule Produces
The 95% offer test is missed, so the (a) payment applies: (130 − 30) × $3,780 = $378,000 for a full year at 2027 rates. Reading the statute against actual counts, not headcount estimates, is what shows the exposure.
Four steps to apply it.
1. Count full-time employees
Use the monthly full-time count.
2. Count offers
Include dependents’ coverage.
3. Test 95%
Compare offers with full-time employees.
4. Check subsidies
Learn whether anyone received a credit.
Where it goes wrong. Treating the statute as a penalty on the uncovered people only. It sets the base on the entire full-time workforce.
The questions that come up next.
Who is an applicable large employer?
Generally an employer with an average of at least 50 full-time employees, including full-time equivalents, in the prior calendar year. The regulations explain the count.
Is the payment deductible?
No. Employer shared responsibility payments are not deductible. Confirm treatment with your tax advisor.
Where do the details live?
In the Treasury regulations at 26 CFR §§ 54.4980H-1 through 54.4980H-6, which define terms and set the rules for full-time status and the payments.
Does the statute apply to small employers?
No. It applies to applicable large employers, generally 50 or more full-time employees including equivalents.
Where do I find the current dollar amounts?
In the annual IRS revenue procedure for the year.
Plan-specific questions belong with ERISA counsel, and we will bring them in.
Related sources and guides.
26 CFR § 54.4980H-1
Section 54.
26 CFR § 54.4980H-2
Section 54.
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