Enhanced Premium Tax Credits are Ending, but ACA Penalties Are Here to Stay and Are Increasing
- Allison Martinez, née De Tal
- Aug 7
- 3 min read
The One Big Beautiful Bill Act (“Bill”) did not extend the enhanced premium tax credits (“PTCs”) which help make health insurance purchased through the marketplace (e.g., Covered California) more affordable for millions of Americans. The Affordable Care Act’s employer shared responsibility penalties are only imposed in situations where a full-time employee receives a PTC or cost-sharing reduction. While many will no longer be eligible for PTCs beginning in 2026, applicable large employers should not get too comfortable because the Bill did not repeal the employer shared responsibility penalties—and they are about to get more expensive.
The enhanced PTCs, implemented by the American Rescue Plan Act of 2021 and extended by the Inflation Reduction Act of 2022, are set to expire at the end of 2025. The enhanced PTCs both increased the PTC amount and expanded their availability to people who make more than four times the federal poverty level (e.g., $124,800 for a family of four in 2024)—capping the cost of benchmark plan premiums at 8.5% of household income. If the enhanced PTCs are not extended by the end of the year, it’s estimated that those enrolled in marketplace plans will see their premiums increase by anywhere from 25% to 100% depending on their income level. As a result, individuals currently enrolled in marketplace plans may no longer be able to afford coverage, or may decide to enroll in their employers’ health plans instead.
On Tuesday, July 22, 2025, the Internal Revenue Service (“IRS”) released the increased employer shared responsibility penalty amounts. Beginning in 2026, pursuant to Revenue Procedure 2025-26, if an applicable large employer (“ALE”) fails to offer group health plan coverage to at least 95% of its full-time employees and a full-time employee receives a PTC or cost sharing reduction, the penalty is $3,340 ($278.33 per month) for each of the employer’s full-time employees. If an ALE offers full-time employees coverage but it is not “affordable” or does not provide “minimum value,” the penalty is $5,010 ($417.50 per month) for each full-time employee receiving a PTC or cost-sharing reduction.
To avoid running afoul of these penalties, employers should adhere to these compliance tips:
Smaller Employers Should Annually Revisit the ALE Determination
Only ALEs are subject to the employer shared responsibility penalties. An employer is considered an ALE if it employs an average of at least 50 full-time employees (including full-time equivalent employees) during the preceding calendar year. Smaller employers with close to 50 full-time employees should regularly review the size of their workforce to determine whether they need to begin offering full-time employees and their dependents health coverage.
Keep Related Employers in Mind
Understanding the related employer rules are important to help avoid hefty penalties. The size of an employer’s workforce for purposes of determining ALE status is determined on a controlled group or affiliated service group (“ASG”) basis by applying Internal Revenue Code (“Code”) Sections 414(b), (c) and (m). Collectively, if the controlled group or ASG employs at least 50 full-time employees, including full-time equivalent employees, affordable coverage that provides minimum value must be offered to avoid penalties. While related employers are combined to determine ALE status, employers are not combined to determine whether each individual employer in the group owes the employer shared responsibility penalties or the amount of penalties owed.
Review The Look-Back Measurement Method Policy
Many employers have adopted the look-back measurement method for variable hour and part-time employees. Employers should periodically review their look-back measurement policy to ensure it is being administered correctly and confirm eligible employees are being offered health coverage during the applicable administrative period.
Ensure Workers are Classified Correctly
Employers should periodically evaluate the status of independent contractors, temporary workers, and workers from a staffing firm or professional employer organization—particularly if they represent a significant portion of the workforce (i.e., more than 5%). Mischaracterizing workers as employees of another employer, or as independent contractors when they should be treated as employees, can result in unexpected employer shared responsibility penalties.
If you have questions regarding the employer shared responsibility penalties or your organization’s Affordable Care Act obligations, please contact your Boutwell Fay LLP attorney.
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