Many business owners assume Affordable Care Act (ACA) penalties no longer apply, but that’s not the case. While the individual mandate penalty was eliminated, employer requirements remain fully in effect.

As your business grows, failing to understand ACA compliance could lead to significant and unexpected penalties.

What Is the ACA “Play-or-Pay” Rule?

The ACA’s employer shared responsibility provisions apply to Applicable Large Employers (ALEs).

Who Qualifies as an ALE?

You’re considered an ALE if you have:

• 50 or more full-time employees, or
• A combination of full-time employees and full-time equivalents (FTEs)

👉 Learn more about how workforce planning impacts compliance on our
Outsourced Accounting Services page.

What Counts as Full-Time?

• 30+ hours per week, or
• 130+ hours per month

This definition often surprises employers, especially those relying heavily on part-time staff.

How FTEs Can Push You Over the Threshold

Part-time employee hours are aggregated to calculate FTEs, which can quickly move a growing business into ALE status—even if it doesn’t seem obvious at first glance.

Understanding ACA Employer Penalties

There are two primary penalty structures under the ACA:

1. Failure to Offer Coverage (Section 4980H(a))

Applies if you don’t offer minimum essential coverage to at least 95% of full-time employees and dependents.

2. Unaffordable or Low-Value Coverage (Section 4980H(b))

Applies when:

• Coverage is offered, but
• It’s unaffordable or doesn’t meet minimum value standards

Both penalties are typically triggered when an employee receives a premium tax credit through the Health Insurance Marketplace. For additional IRS guidance, visit the
IRS Employer Shared Responsibility Provisions

ACA Penalty Increases for 2026

Penalty amounts are rising in 2026:

• $3,340 per employee for failing to offer coverage
• $5,010 per employee for unaffordable or inadequate coverage

These increases make proactive compliance more important than ever.

IRS Enforcement: What to Watch For

The IRS enforces ACA penalties through Letter 226-J, which outlines proposed penalties.

If received:

• You typically have 30 days to respond
• You’ll use Form 14764 (ESRP Response)

Timely response is critical to avoid further complications.

Key Considerations for Growing Businesses

As your company expands, ask yourself:

Are You Near the ALE Threshold?

Growth can quietly push you into compliance territory.

Are You Tracking Employees Correctly?

Misclassifying employees can lead to inaccurate reporting and penalties.

Are Your Systems ACA-Ready?

Ensure payroll and HR systems can handle:

• Form 1094-C
• Form 1095-C

👉 Explore how our
Government Consulting Services
can support compliance and operational efficiency.

Don’t Let ACA Compliance Become a Blind Spot

ACA penalties are still in effect—and increasing. Businesses on the cusp of growth are especially vulnerable to costly missteps.

Proactive planning, accurate employee tracking, and proper reporting systems can help you stay compliant and avoid penalties.

Need help navigating ACA requirements or determining your ALE status?
Visit THF.cpa or contact our team today to ensure your business stays compliant and penalty-free.