On July 22, 2025, the IRS issued the indexing adjustments for calculating employer shared responsibility payments (ESRPs) under the Affordable Care Act (ACA) for 2025 (Revenue Procedure 2025-26). Under the new calculations, the 2025 ESRPs will be significantly more for 2026.

Background

Employers are responsible for ESRPs for any given month when: (1) an applicable large employer (ALE) fails to offer minimum essential coverage (MEC) to at least 95% of full-time employees (the "A Penalty"), or (2) an ALE offers full-time employees and their dependents MEC providing minimum value that is unaffordable (the "B Penalty"). In both cases, an ESRP is only triggered when a full-time employee enrolls in coverage through a federal or state-provided health insurance marketplace and qualifies for premium support in the form of a premium tax credit (PTC) under IRC Section 36B.

The ESRP amounts were set by the ACA in 2014 to be indexed each year by a formula incorporating the premium adjustment percentage.

For 2026, an employer that does not offer MEC coverage to at least 95% of their full-time employees may be assessed the "A Penalty" of $3,340 for each full-time employee (up from $2,900 for 2024). An employer that does not offer a minimum value plan that is affordable may be assessed the B penalty of $ $5,010 for each full-time employee who receives a PTC (up from $4,350 for 2024). An employer cannot be subject to both penalties.

Implications

The higher penalty amounts for 2026 are the result of changes to the income and premium factors that are used in calculating the penalty amounts. This is a change from 2025, when the penalties decreased (see Tax Alert 2024-0412). Employers should consider these amounts when estimating their potential ACA compliance reporting expenses.