The Two Penalty Tracks
| Penalty | Trigger | 2026 Amount | 2027 Amount |
|---|---|---|---|
| 4980H(a) — "A penalty" | Fail to offer MEC to 95% of FTEs; at least one FTE gets PTC | $3,340 × (all FTEs minus 30) | $3,780 × (all FTEs minus 30) |
| 4980H(b) — "B penalty" | Offer unaffordable or non-MV coverage; at least one FTE gets PTC | $5,010 per FTE who gets PTC | $5,670 per FTE who gets PTC |
Penalty Calculation Example
An ALE with 200 full-time employees that fails to offer MEC to 95% of them (the 4980H(a) scenario) faces a 2026 penalty of $3,340 × (200 − 30) = $3,340 × 170 = $567,800 per year — if at least one employee receives a premium tax credit. This is why the 4980H(a) penalty is so dangerous: it applies to all full-time employees, not just those who receive a premium tax credit.
The Premium Tax Credit Trigger
Watch Out
Both 4980H penalties are triggered only when at least one full-time employee receives a premium tax credit through the Exchange. The IRS notifies employers of potential penalty liability through Letter 226-J. Employers have 90 days to respond to Letter 226-J — failure to respond results in the penalty being assessed. If you receive a Letter 226-J, engage ERISA counsel immediately.