ACA Employer Mandate: Are You an Applicable Large Employer?

The Affordable Care Act's employer shared responsibility provisions, usually called the employer mandate, do not apply to every business that offers health coverage. They apply only to an "applicable large employer," or ALE, and the IRS decides who counts with a specific formula that looks at last year's workforce.

Many small businesses fall well below the line. Others are surprised to land on the wrong side of it, because part-time hours add up and related companies can be counted together. This guide walks through how the IRS counts, what an ALE has to do, and how the potential payments work.

This is general information, not legal, tax or insurance advice. For a decision about your own business, talk with a licensed professional such as a CPA, enrolled agent or benefits attorney, and use the IRS pages listed under Sources.

What being an ALE triggers

The IRS explains that two parts of the ACA apply only to ALEs: the employer shared responsibility provisions, and the employer information reporting provisions for offers of coverage (Forms 1094-C and 1095-C). If you are not an ALE, neither applies to you for that year.

ALE status is decided each calendar year, and the IRS says it "generally depends on the average size of an employer's workforce during the prior year." So your 2026 status depends on your 2025 workforce.

How to count full-time and full-time equivalent employees

The IRS test is an average of at least 50 full-time employees, including full-time equivalent employees, during the prior calendar year. The counting rules the IRS publishes are:

• A full-time employee for a month is one who averages at least 30 hours of service per week, or at least 130 hours of service in the month.
• To get full-time equivalents for a month, add up the hours of all employees who are not full-time (counting no more than 120 hours for any one person), then divide the total by 120.
• Add the full-time count and the full-time equivalent count for each of the 12 months, then divide the total by 12.

The IRS's own example shows how part-time hours matter. A company with 40 full-time employees and 15 part-time employees working 60 hours a month comes out to 47.5, which the IRS rounds down to 47, so it is not an ALE. The same company with 20 such part-timers comes out to exactly 50, so it is an ALE, even though it has only 40 full-time workers.

The IRS also notes that an employee is not counted toward the 50-employee threshold for a month in which the employee has medical coverage through the military, including TRICARE or veterans' coverage.

Related companies, seasonal workers and new businesses

Three special rules can change the answer:

• Common ownership. Under the IRS's aggregation rules, companies with a common owner or that are otherwise related under section 414 of the Internal Revenue Code are generally combined to decide ALE status. If the group reaches the threshold, each company is an ALE member, even if it would be small on its own. Any payment, however, is figured separately for each member.
• Seasonal workers. The IRS says an employer is not treated as having more than 50 full-time employees if its workforce goes over 50 for 120 days or fewer during the year and the employees above 50 during that period are seasonal workers, such as retail workers employed only for the holidays.
• New businesses. An employer that did not exist on any business day in the prior year is an ALE for the current year if it reasonably expects to employ, and actually does employ, an average of at least 50 full-time employees (including equivalents) on business days during that year.

If you own several businesses or hire seasonally, run the numbers with your tax advisor.

What an ALE must offer to avoid a payment

The IRS describes the choice simply: an ALE member can offer affordable coverage that provides minimum value to its full-time employees and their dependents, or it may owe a payment. A few definitions matter:

• Dependents. For this rule, the IRS defines a dependent as an employee's child under age 26. Spouses are not dependents.
• Minimum value. According to the IRS questions and answers, a plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits expected under the plan and substantially covers inpatient hospital and physician services.
• Affordability. The IRS explains that the original threshold was 9.5 percent of household income, adjusted every year. For plan years beginning in 2026, IRS Revenue Procedure 2025-25 sets the required contribution percentage at 9.96 percent, and for 2027 IRS Revenue Procedure 2026-26 sets it at 10.22 percent. The IRS questions and answers explain that the employer mandate's affordability test follows that adjusted figure.

Because employers rarely know an employee's household income, the IRS offers three affordability safe harbors based on information you do have: Form W-2 wages, the employee's rate of pay, or the federal poverty line for a single person. Affordability is tested against the lowest-cost self-only option that provides minimum value.

You do not have to offer coverage to part-time employees. The IRS states that a part-time employee's premium tax credit for Marketplace coverage cannot trigger a payment.

How the two possible payments work

Either payment applies only if at least one full-time employee gets a premium tax credit for Marketplace coverage. The IRS describes two kinds, and an employer can owe only one of them:

1. If an ALE member does not offer coverage to at least 95 percent of its full-time employees and their dependents, the payment is figured on all full-time employees minus the first 30.
2. If it does offer coverage to at least 95 percent, a payment can still apply for each full-time employee who gets a premium tax credit, for example because the offer was not affordable or did not provide minimum value. This amount is capped at what the first payment would have been.

The IRS explains that the law set base amounts of $2,000 and $3,000 per employee per year, indexed for inflation for years after 2014. For calendar year 2026, IRS Revenue Procedure 2025-26 sets the adjusted amounts at $3,340 and $5,010, and for calendar year 2027, IRS Revenue Procedure 2026-22 sets them at $3,780 and $5,670. The IRS employer shared responsibility page, last updated in August 2026, still lists adjusted amounts only through 2024, so use the revenue procedures for later years. Both payments are calculated month by month, not as a flat annual charge.

What happens if the IRS thinks you owe

The IRS says an employer is not obligated to calculate its own liability "and should not make a payment without first being contacted by the IRS." The contact comes as Letter 226J, which lists the proposed amount and the employees involved and names a specific IRS employee to contact. According to the IRS questions and answers, the response is generally due 30 days from the date of the letter. If you disagree after the follow-up Letter 227, you can ask for a conference with the IRS Office of Appeals.

Be careful with anything that only claims to be from the IRS. The IRS warns that scammers send fake tax bills to trick people into paying them, and that email and text impersonators want you to send them money. Don't use a phone number or link from a message you weren't expecting. Look up the contact details on IRS.gov yourself, and talk to your tax professional before you pay anything.

Key takeaways

• Only applicable large employers, generally those that averaged at least 50 full-time employees including equivalents in the prior year, are subject to the employer mandate and Form 1095-C reporting.
• Part-time hours count through the full-time equivalent formula, and related companies are generally counted together.
• Under the IRS rules, an ALE avoids a payment by offering coverage that is affordable and provides minimum value to at least 95 percent of full-time employees and their children under 26.
• For plan years beginning in 2026, IRS Revenue Procedure 2025-25 sets the affordability percentage at 9.96 percent; for 2027, Revenue Procedure 2026-26 sets 10.22 percent. Recheck it every year.
• For calendar year 2026, the IRS sets the two per-employee payment amounts at $3,340 and $5,010 (Revenue Procedure 2025-26).
• Don't pay a mandate amount on your own. The IRS starts the process with Letter 226J, so verify any letter through IRS.gov before acting on it.

Sources

• Internal Revenue Service, Determining if an employer is an applicable large employer
• Internal Revenue Service, Employer shared responsibility provisions
• Internal Revenue Service, Questions and answers on employer shared responsibility provisions under the Affordable Care Act
• Internal Revenue Service, Revenue Procedure 2025-25 (required contribution percentage for 2026)
• Internal Revenue Service, Revenue Procedure 2026-26 (required contribution percentage for 2027)
• Internal Revenue Service, Revenue Procedure 2025-26 (employer shared responsibility amounts for 2026)
• Internal Revenue Service, Revenue Procedure 2026-22 (employer shared responsibility amounts for 2027)
• Internal Revenue Service, Recognize tax scams and fraud