IRS to increase employers' health coverage 'pay-or-play' penalties 13%

Related: IRS employer health insurance 'pay-or-play' penalties to rise 15.2% in 2026

One penalty affects large employers that fail to offer the kind of "minimum essential coverage," or major medical insurance, required by Internal Revenue Code section 4980H(a) to at least 95% of its full-time employees.

The employer might have to pay the penalty if an employee buys health coverage from an ACA public exchange program and ends up qualifying for federal ACA premium tax credit subsidies.

The MEC offer penalty will increase to $3,780 next year.

That's up from $3,340 this year, and up from $2,000 in 2010, when the ACA was enacted.

The other penalty, the IRC section 4980(H)(b) penalty, affects employers that fail to offer full-time employees affordable coverage with a minimum value.

The affordable coverage/minimum value penalty will increase to $5,670, from $5,010 this year.

The original amount included in the statute was $2,000.

What it means: The numbers the IRS uses to adjust ACA penalty levels for inflation are supposed to be based on National Health Expenditure Accounts data and reflect the government's best estimate of how much health care costs have really increased.

The new penalty increase guidance means that the IRS thinks health care costs have really increased about 13.2%.

Source of uncertainty: Members of Congress and the administration of President Donald Trump have proposed changes to the ACA in the past.

Policymakers could change the employer penalty system in 2027 or change how the IRS enforces the penalty requirements.

The penalties could decrease or vanish if policymakers want to back away from ACA requirements, but the penalty levels could increase if policymakers are looking for a way to increase penalty revenue.