Compliance
Mastering U.S. Employer Shared Responsibility Penalties for 2026 (IRC §4980H)
Starting in 2026, increased penalty thresholds under IRC §4980H will affect how employers deliver health coverage. Here’s what’s changing and how to stay compliant.
By NomadicTax Research Team • 5-8 min read • November 19, 2025
## What’s New for 2026 under IRC §4980H
Under **Revenue Procedure 2025-26** (published recently by the IRS), the dollar amounts used for calculating employer shared responsibility payments (ESRPs) under IRC §4980H(c)(1) and (b)(1) are indexed and increased for **plan years beginning after December 31, 2025**.([irs.gov](https://www.irs.gov/irb/2025-33_IRB?utm_source=openai))
• The “$2,000 amount” under §4980H(c)(1) is adjusted upward.([irs.gov](https://www.irs.gov/irb/2025-33_IRB?utm_source=openai))
• The “$3,000 amount” under §4980H(b)(1) also increases.([irs.gov](https://www.irs.gov/irb/2025-33_IRB?utm_source=openai))
## Who Is Affected
Employers subject to the employer shared responsibility provisions (large employers with 50 or more full-time equivalent employees under the ACA) who **fail to offer affordable minimum essential health coverage** risk these penalties. The changes matter for:
- Those determining whether coverage is “unaffordable” using the thresholds (employee contributions exceeding a certain percentage of household income).
- Those evaluating whether the coverage meets minimum value.
- Payroll and benefits administrators estimating potential ESRPs for non-compliance.
## Breakdown of the Updated Dollar Amounts
While specific dollar numbers are published in the IRS revenue procedure, the key is the method:
- The IRS applies a **premium adjustment percentage** derived from updated national health data to calculate new thresholds.([irs.gov](https://www.irs.gov/irb/2025-33_IRB?utm_source=openai))
- Amounts are rounded down to the nearest $10 for tax purposes.([irs.gov](https://www.irs.gov/irb/2025-33_IRB?utm_source=openai))
## Practical Tax Planning Tips
1. **Review employee contribution rates** — ensure that the amount employees pay toward employer health plans stays below the new threshold for affordability.
2. **Evaluate plan value** — minimum essential coverage standards must still be met; plan design and VEBA/HRA structures could affect value.
3. **Update your ACA-related disclosures and notices** ahead of plan year renewals in 2026.
4. **Forecast penalty exposure** — use the updated amounts for mid-year budget forecasting; retroactive exposure may occur if thresholds were exceeded without realize it.
5. **Check employer size status** — if just around the 50-employee threshold, understand classification rules to know whether the ESRP rules apply.
## Example Scenario
**ABC Corp**, with 120 full-time equivalent employees:
- In 2025, they offer coverage but employees pay 9.7% of household income.
- In 2026, due to the increased dollar thresholds, employees paying **10.3%** may exceed the new affordability threshold.
- ABC Corp may need to increase employer contribution or design cost-sharing differently to avoid penalties.
## Key Takeaway
These changes are **significant for employers offering health plans**, especially with rising healthcare costs. Early review and adjustment can prevent unexpected penalties under §4980H.