The Affordable Care Act eliminated the federal individual mandate penalty starting in 2019, so individuals no longer face a federal tax penalty for going without insurance. The rules are different for employers and people in certain states, and the stakes for employers are high. Here is who faces penalties, how they are calculated, and how to steer clear of fines.
Employer Shared Responsibility Penalties (ESRP)
Under the ACA's Employer Mandate, applicable large employers (ALEs) with 50 or more full-time equivalent employees must offer affordable, minimum value health coverage to at least 95% of their full-time employees and their dependents. If an ALE doesn't comply, it triggers penalties under IRC Section 4980H. The IRS adjusts both penalty amounts each year for inflation. There are two types:
Penalty A: The “No Coverage” Penalty
An ALE triggers this if it fails to offer coverage to at least 95% of full-time employees (and their dependents), and at least one full-time employee receives a premium tax credit through the Exchange. For 2026, the annual penalty is $3,340 per full-time employee, excluding the first 30 employees. It applies to the entire full-time workforce, not just the employee who received the credit.
Penalty B: The “Unaffordable or Non-Minimum Value” Penalty
If the employer offers coverage, but that coverage is either unaffordable (meaning the employee's required contribution for the lowest-cost self-only minimum value plan exceeds 9.96% of household income in 2026) or fails to provide minimum value (the plan pays less than 60% of covered benefits), and a full-time employee receives a premium tax credit, then the penalty is $5,010 per employee receiving the credit for 2026. This penalty applies only to the affected employees, not the whole workforce. Employers can stay within the affordability test by meeting one of three IRS safe harbors: the federal poverty line safe harbor, the rate-of-pay safe harbor, or the Form W-2 safe harbor.
What the 2026 Penalties Cost a Typical Employer
Take an ALE with 100 full-time employees that offers no coverage at all. If even one employee gets a subsidized Exchange plan, the Section 4980H(a) penalty applies to 70 employees (100 minus the first 30), which is $3,340 × 70, or $233,800 for the year. The same employer that offers coverage priced above the 9.96% affordability threshold faces the Section 4980H(b) penalty instead: $5,010 for each full-time employee who receives a premium tax credit. If 10 employees take subsidized Exchange coverage, that is $50,100. These aren't one-time fees. They repeat for every year the coverage falls short, and the IRS indexes both amounts upward each year.
Current State-Level Individual Mandate Penalties
While the federal penalty is gone, several states and the District of Columbia have their own individual mandates with penalties. If you live in these areas, you may still face a fine for not having health coverage:
- California: The penalty is the greater of a flat amount or 2.5% of household income above the filing threshold. For the 2025 tax year, the flat amount is $950 per adult and $475 per child.
- Massachusetts: The first state to implement an individual mandate. Penalties vary by income and age but can reach up to 50% of the lowest-cost premium for a plan meeting minimum creditable coverage.
- New Jersey: Penalties mirror the former federal structure. For the 2025 tax year, the penalty is the greater of $695 per adult ($347.50 per child, up to a family maximum of $2,085) or 2.5% of household income above the filing threshold.
- Rhode Island: Effective 2020, penalties follow the federal model: the greater of a flat per-person amount or a percentage of household income above the state filing threshold.
- Vermont: Residents must report whether they had coverage on their state tax return, but there is no financial penalty for going without insurance.
- District of Columbia: The penalty is the greater of a flat per-adult amount or 2.5% of household income above the filing threshold, capped at the average annual bronze-plan premium (about $4,494 per person for 2025).
When Do Employees Face ACA Penalties?
For employees, the direct federal penalty is gone. Indirect consequences remain. If an employer reports coverage incorrectly on Form 1095-C, employees can face processing delays or errors on their tax returns. And an employee who receives a premium tax credit despite holding an offer of affordable, minimum value coverage may have to repay the excess credit when they file.
How WellthCare Helps Employers Avoid Penalties
Employers face rising compliance burdens, and ACA reporting remains strict. The surest way to avoid penalties is to make sure all full-time employees have access to affordable, minimum value coverage. WellthCare™, the first Health-to-Wealth™ Benefit System, helps employers meet that goal by offering $0-co-pay preventive care used before claims hit the primary plan, rewarding each verified action with reward dollars at the WellthCare Store™, and supporting automatic retirement contributions funded by savings employers commit. That reduces overall claim costs and makes it easier to maintain compliant, affordable coverage.
WellthCare works alongside your existing health plan with no disruption, giving employees $0-co-pay preventive care and automatic wealth-building incentives. That lowers claims and keeps employees healthier, which makes ACA requirements easier to meet. For larger employers ready to move beyond BUCA (Blue Cross, UnitedHealth, Cigna, Aetna), WellthCare Complete™ offers a fully aligned, self-funded alternative with projected savings of 30-45% while keeping you compliant. And with the WellthCare Readiness Index™, you get data-driven proof of when switching cuts costs and risk, before penalties ever become an issue.
Final Takeaway: No Federal Penalty for Individuals, but Employers Must Stay Vigilant
The individual mandate penalty at the federal level is gone, but employers with 50 or more full-time equivalent employees must still offer compliant coverage or face fines of $3,340 to $5,010 per employee per year. State-level penalties also remain in several jurisdictions. For employers, the smartest approach is to use tools like WellthCare's ecosystem to drive down claim costs and improve employee health, making compliance both affordable and sustainable. Companies that keep their coverage affordable and minimum-value compliant avoid these penalties, and preventive, wealth-building benefits can help build a stronger, more loyal workforce.