The IRS has announced updated Employer Shared Responsibility (ESR) payment amounts for 2027 under the Affordable Care Act (ACA). These penalties, often referred to as the “employer mandate” penalties, are increasing. Employers should understand how the new amounts may impact their compliance strategy.
For 2027, the ESR payment amounts will rise to $3,780 and $5,670, up from $3,340 and $5,010 in 2026.
Penalty Breakdown
ESR penalties arise when an applicable large employer (ALE), defined as an employer with 50 or more full‑time or full‑time‑equivalent employees, fails to offer minimum essential coverage (MEC) to at least 95% of its full‑time employees and their dependents. The coverage offered must also satisfy affordability and minimum value requirements. Failing to meet these requirements can trigger one of two ESR payments:
The “A Penalty”: Not Offering Coverage to 95% of Full‑Time Employees
If an ALE does not offer MEC to at least 95% of full‑time employees and their dependents, and at least one full‑time employee receives a premium tax credit through a Health Insurance Exchange, the employer owes:
- $3,780 × (number of full‑time employees – 30) (Annualized for 2027)
This penalty applies across the entire full‑time workforce, not just the employees who received a tax credit.
The “B Penalty”: Coverage Offered, But Not Affordable or Not Minimum Value
If an ALE does offer MEC to at least 95% of full‑time employees, but the coverage is either not affordable, does not provide minimum value, or an employee was mistakenly not offered coverage and that employee receives a premium tax credit, the employer owes:
- $5,670 per affected employee (annualized for 2027)
- Calculated monthly as: 1/12 of $5,670 × number of full‑time employees receiving a tax credit
However, this penalty is capped. For any month, it cannot exceed what the employer would have owed under the “A Penalty” for that same month.
Here to Help
Even if your organization has strong ACA compliance processes, a single reporting error, affordability miscalculation or missed offer of coverage can now cost more than ever. This is where payroll and HR technology becomes essential. Automated tracking, accurate full‑time status calculations and integrated ACA reporting tools help employers:
- Maintain compliance throughout the year
- Avoid costly misclassification errors
- Ensure timely and accurate 1094/1095 filings
- Reduce exposure to IRS penalty notices
Collaborating with a payroll provider well-versed in ACA regulations can help streamline your compliance efforts and reduce administrative burden. To discover how we support our clients in maintaining ACA compliance, reach out to us today.
