IRC Section 4980H Employer Mandate Penalties

IRC Section 4980H Penalties: What Applicable Large Employers Need to Know

IRC Section 4980H Penalties are federal excise taxes levied on Applicable Large Employers (ALEs with 50+ full-time equivalents) failing to offer affordable, minimum essential coverage. For 2026, the Subsection (a) penalty for offering no coverage is $3,340 per employee; the Subsection (b) penalty for offering unaffordable coverage is $5,010 per employee receiving a tax credit.

Who Qualifies as an Applicable Large Employer (ALE)?

Under the ACA Employer Shared Responsibility provisions, an employer is an ALE if they employed an average of at least 50 full-time employees (including full-time equivalents) during the preceding calendar year. ALEs that fail to comply face two distinct penalty tiers administered through IRS Letter 226-J.

Subsection 4980H(a) — The "No Coverage" Penalty

This penalty triggers if an ALE fails to offer Minimum Essential Coverage (MEC) to at least 95% of its full-time employees (and their dependents), and at least one full-time employee receives an ACA Premium Tax Credit on an exchange.

• 2026 Rate: $3,340 per year ($278.33 per month) multiplied by the total number of full-time employees, minus the first 30 employees.
• Example: An ALE with 100 full-time employees failing to offer coverage faces an annual penalty of $233,800 ((100 − 30) × $3,340).

Subsection 4980H(b) — The "Unaffordable Coverage" Penalty

This penalty triggers when an ALE offers coverage to at least 95% of full-time employees, but the coverage is either unaffordable (exceeding 9.96% of safe harbor income in 2026) or fails to provide minimum value, and an employee subsequently claims a Premium Tax Credit on the marketplace.

• 2026 Rate: $5,010 per year ($417.50 per month) for each full-time employee who actually receives a subsidized marketplace tax credit.
• Cap: The total 4980H(b) penalty cannot exceed the amount the employer would have owed under 4980H(a).

How SimplyHRA Eliminates 4980H Liability

Because an Individual Coverage HRA qualifies as Minimum Essential Coverage (MEC), offering an ICHRA to 95%+ of full-time staff completely satisfies Subsection (a). Furthermore, SimplyHRA automatically calculates required allowance thresholds against IRS safe harbors (W-2, Rate of Pay, FPL), ensuring every employee allowance meets the 9.96% affordability test and shielding the organization from Subsection (b) penalties.