The IRS Just Raised ACA Penalties to $5,670 a Worker — Is Your Coverage Affordable?

The Number That Decides Whether Your Health Plan Passes the IRS Test

If your business offers health insurance to full-time employees — or is required to under the Affordable Care Act — the IRS just moved the goalposts for 2027, and it's worth understanding before you lock in next year's benefits budget. In Revenue Procedure 2026-26, the IRS set the 2027 ACA affordability percentage at 10.22% of an employee's household income, up from 9.96% this year. That's the highest affordability percentage since the ACA's employer mandate took effect, and it changes how much you can ask employees to contribute toward their coverage without triggering a penalty.

Who This Actually Applies To

The ACA's employer shared responsibility rules apply to "applicable large employers," or ALEs — generally businesses with 50 or more full-time equivalent employees. If that's your business, you're required to offer full-time employees health coverage that's both affordable and provides minimum value, or risk a penalty. If you're under that 50-employee threshold, the mandate doesn't apply to you directly, though the affordability rules still matter if you're offering coverage voluntarily and want employees to qualify for premium tax credit purposes.

For everyone in the 50-to-500-employee range this site serves, this is the number your HR or finance lead needs before finalizing 2027 plan rates during open enrollment planning, which typically starts now, in late summer.

How the Affordability Test Works

The rule itself is simple: an employee's required contribution for self-only coverage generally can't exceed a set percentage of their household income. Since employers usually don't know an employee's actual household income, the IRS allows three safe harbors to estimate it:

• Form W-2 wages safe harbor: Multiply the amount in Box 1 of the employee's W-2 by 10.22%. For 2027, whatever that number is, the employee's required contribution for self-only coverage can't exceed it.
• Rate of pay safe harbor: Uses the employee's hourly rate or monthly salary at the start of the plan year instead of their W-2 wages.
• Federal poverty line safe harbor: Uses the federal poverty line for a single individual, which gives employers a stable number to plan around before the plan year starts.

A higher affordability percentage is actually good news for employers: it means you have more room to ask employees to contribute before you cross into "unaffordable" territory. In 2026, coverage had to cost an employee no more than 9.96% of income; in 2027, that ceiling rises to 10.22%. On a $50,000 W-2 wage, that's the difference between a maximum employee contribution of $4,980 versus $5,110 for the year — not a massive swing, but real room if you've been absorbing rising premiums to stay under the line.

The Penalty for Getting It Wrong Just Went Up Too

The IRS didn't just update the affordability percentage — it also raised the penalties for employers who don't comply, and the increase is significant enough to budget around.

• The Section 4980H(a) penalty — triggered when an ALE doesn't offer minimum essential coverage to enough full-time employees and at least one gets subsidized coverage on the Exchange — rises to $3,780 per full-time employee for 2027 (after excluding the first 30 employees), up from $3,340 in 2026.
• The Section 4980H(b) penalty — triggered when coverage is offered but isn't affordable or doesn't provide minimum value, and an employee gets subsidized Exchange coverage instead — rises to $5,670 per affected employee for 2027, up from $5,010 in 2026.

For a business with even a modest number of full-time employees, a compliance misstep at $5,670 per employee adds up fast. This is the kind of number worth reviewing with whoever manages your business insurance and benefits before you finalize next year's plan.

Why This Matters Now, Not in December

Open enrollment for 2027 plans will land in the fall, but the planning work — setting contribution levels, choosing plan tiers, running the numbers against the new 10.22% threshold — happens now. Waiting until enrollment season to check your math against the new affordability percentage risks locking in a plan design that technically fails the test, which isn't something you want to discover after the fact.

If you're growing toward the 50-employee threshold, this is also a good moment to get ahead of it. Crossing into ALE status brings the affordability and coverage requirements with it, and business owners are often caught off guard by exactly when that obligation kicks in relative to their headcount. A conversation with a benefits advisor or accountant now, rather than after you cross the line, avoids a scramble later. It's also worth having clean records for your growing headcount — the kind that come from properly distinguishing independent contractors from employees from the start, since misclassified workers can quietly push you toward — or past — the 50-employee threshold without you realizing it.

What to Do With This Information

For business owners subject to the employer mandate, three things are worth doing this month:

• Recalculate your maximum allowable employee contribution for 2027 using whichever safe harbor you've historically relied on — Box 1 wages, rate of pay, or the federal poverty line — with the new 10.22% figure.
• Compare that number against the premium increases your insurance carrier has already quoted for 2027. If premiums are rising faster than the affordability cushion, you may need to absorb more of the increase as the employer rather than passing it to employees.
• If you're near the 50-full-time-equivalent-employee line, get a formal headcount count now, factoring in how part-time hours convert to full-time equivalents, so you know with certainty whether the mandate applies to you for 2027.

None of this requires immediate action with the IRS — there's no form to file over this specific update. But the math you use to set 2027 health plan contributions needs to reflect the new percentage, and the cost of getting it wrong just climbed to $5,670 per employee.

Photo by National Cancer Institute on Unsplash