Rev. Proc. 2025-26 (July 22, 2025)
Available at https://www.irs.gov/pub/irs-drop/rp-25-26.pdf
The IRS has announced 2026 indexing adjustments to the applicable dollar amount used to calculate employer shared responsibility payments under the Affordable Care Act (ACA). As background, applicable large employers (ALEs) may be liable for an employer shared responsibility penalty under Code § 4980H(a) if they fail to offer minimum essential coverage to 95% of full-time employees (and their dependents, excluding spouses), if the employee receives subsidized coverage through an Exchange. Alternatively, ALEs may be subject to a Code § 4980H(b) penalty if they offer minimum essential coverage to full-time employees (and their dependents, excluding spouses) who receive subsidized coverage through an Exchange, but the offered coverage is not affordable and minimum value. The adjusted penalty amount for failures occurring in the 2026 calendar year will be $3,340 under Code § 4980H(a) per full-time employee (less the 30-employee reduction) (a $440 increase from 2025), and $5,010 under Code § 4980H(b) per full-time employee that receives subsidized coverage through an Exchange (a $660 increase from 2025). (Current and previous penalty amounts are available on an IRS Q/A page.)
EBIA Comment: To avoid ACA employer shared responsibility penalties, employers are advised to regularly ensure full-time employees are identified and offered minimum essential coverage that is minimum value and affordable. As a reminder, the IRS uses Letter 226-J to inform ALEs of their potential liability under Code § 4980H. A response form (Form 14764) is included with Letter 226-J so that an ALE can inform the IRS whether it agrees with the proposed penalty. For proposed assessments issued on or after January 1, 2025, the employer has at least 90 days from the date of Letter 226-J to respond. Employers and their advisors should be prepared to promptly review and respond to this letter, keeping in mind that IRS procedures may change based on a recent federal trial court ruling that set aside an HHS regulation allowing the IRS to certify employer shared responsibility penalties. For more information, see EBIA’s Health Care Reform manual at Section XXVIII (“Shared Responsibility for Employers (Play or Pay Penalty Tax)”). See also EBIA’s Form 1094/1095 Workbook at Section XV (“Penalty Assessment”).
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