The ACA employer mandate A penalty, explained.
The A payment applies to an applicable large employer that fails to offer coverage to enough full time employees. It is based on coverage, not on whether returns were filed on time.
What the IRS says.
When It Applies
The A payment applies when an ALE does not offer minimum essential coverage to at least 95 percent of its full time employees and their dependents, and at least one full time employee receives a premium tax credit for marketplace coverage.
How It Is Calculated
For 2026 the amount is $3,340 per full time employee, excluding the first 30, figured monthly. The figure comes from the IRS indexing notice, Rev. Proc. 2025-26.
Example
A hypothetical ALE with 100 full time employees fails the 95 percent test for all 12 months of 2026. 100 less 30 is 70, and 70 times $3,340 is $233,800 for the year.
Three steps for the employer.
Test Your Offer Rate Monthly
Track each month how many full time employees were offered coverage, because the test is applied by month.
Confirm Who Is Full Time
Make sure your records classify full time employees correctly each month, since the count drives the 95 percent test and the payment.
Respond Properly to Letter 226-J
If the IRS proposes a payment, the letter generally allows 30 days to respond. Gather your records before you answer.
Three questions to settle first.
What Percent Did We Offer Each Month?
Ask your benefits administrator for monthly offer counts for the year in question.
Who Counted as Full Time?
Ask payroll for the full time list used for reporting and compare it with the offer list.
Did Our Returns Match the Facts?
Ask your provider to confirm the filed forms match your offer records.
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
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