ACA Employer Mandate

Who is an applicable large employer

An employer is an applicable large employer (ALE) for a calendar year if it averaged at least 50 full-time employees, including full-time equivalents, during the prior calendar year. The count uses the formula above. Related companies under common ownership (a controlled group under IRS aggregation rules) are counted together for this test, even if each entity is small on its own.

The counting is where part-time-heavy employers get caught. Full-time equivalents only matter for deciding ALE status; the obligation to offer coverage applies to full-time employees, not to FTEs. A seasonal worker exception exists: if the workforce exceeds 50 only because of seasonal workers for 120 days or fewer, the employer is not an ALE. For the general concept of FTE counting, see full-time equivalent.

The two penalties

Section 4980H has two separate penalties, sometimes called the "A" and "B" penalties. Both are only triggered when at least one full-time employee buys Marketplace coverage and receives a premium tax credit.

4980H(a), failure to offer. If the ALE does not offer minimum essential coverage to at least 95 percent of its full-time employees and their dependent children up to age 26, the penalty is calculated on all full-time employees minus the first 30. For 2025 the annual amount was $2,900 per full-time employee. A 500-employee company that missed the 95 percent threshold would face (500 − 30) × $2,900 = $1,363,000 for the year.

4980H(b), coverage not affordable or not minimum value. If coverage was offered but it was unaffordable or did not provide minimum value, the penalty applies only for each full-time employee who actually received a premium tax credit. For 2025 the annual amount was $4,350 per such employee, capped at what the A penalty would have been.

Both amounts are indexed every year, so check the current IRS figures. Penalties are assessed by IRS letter (Letter 226-J), often two years after the year in question.

Affordability and minimum value

Coverage is affordable if the employee's share of the lowest-cost self-only option does not exceed a set percentage of household income; the percentage is adjusted yearly (9.02 percent for 2025). Since employers do not know household income, the IRS allows three safe harbors: W-2 wages, rate of pay, and the federal poverty line. Hourly employers often use the rate of pay or poverty line safe harbor because hours swing month to month.

Minimum value means the plan pays at least 60 percent of total allowed costs and includes substantial coverage of inpatient hospital and physician services. Most standard major medical plans meet it; very thin "skinny" plans usually do not, which avoids the A penalty but not the B penalty.

Variable-hour, seasonal and high-turnover workforces

Contact centers, warehouses, retail and staffing firms have the hardest time with the mandate, because many employees' hours do not settle into a clear full-time or part-time pattern. The look-back measurement method handles this. The employer picks a standard measurement period of 3 to 12 months, counts each employee's hours, and anyone who averaged 30 or more hours is treated as full time for a following stability period, regardless of hours actually worked during it. New variable-hour employees get an initial measurement period of their own.

The monthly measurement method is simpler but riskier: an employee who crosses 130 hours in a month is full time for that month, and you may not be able to offer coverage in time. For a 600-agent contact center where schedules change weekly, look-back measurement is almost always the safer choice.

Staffing firms usually carry the obligation for their own temporary employees. A client can receive credit for coverage the agency offers only if the client pays a higher fee for workers enrolled in the agency's plan, so put the arrangement in the staffing contract. Also keep the separate ACA rule in mind that waiting periods for eligible employees cannot exceed 90 days; see benefits waiting period.

Reporting on Forms 1094-C and 1095-C

ALEs file Form 1094-C (the transmittal) and a Form 1095-C for every full-time employee with the IRS each year, and furnish the 1095-C to employees. The 1095-C codes, month by month, whether coverage was offered, the employee's cost, and which safe harbor or relief applies. Most penalty letters trace back to coding errors, not to genuine failures to offer coverage.

IRS deadlines and the rules on furnishing forms to employees have changed in recent years, including 2024 legislation that allows furnishing on request in some cases, so confirm the current year's instructions. Keep hours records, offer letters and enrollment or waiver forms for every full-time employee; you will need them to respond to a Letter 226-J. This page is informational, not tax or legal advice.

Common mistakes

• Ignoring the controlled group. Three related companies of 25 employees each make one ALE.
• Missing new full-timers. An employee hired into a full-time role should be offered coverage by the first of the month after a waiting period of no more than 90 days, not after a measurement period meant for variable-hour staff.
• Wrong 1095-C codes. Pair HR and payroll data, and review codes before filing.
• Assuming waivers do not matter. Keep written waivers. They prove an offer was made.

For how the mandate fits with other plan costs, see employee benefits.