As of 2026, the federal penalty for going without health insurance is $0. The individual mandate penalty under the Affordable Care Act (ACA) has been reduced to zero at the federal level. For most Americans, the IRS won't charge a tax penalty for lacking minimum essential coverage. State penalties and employer mandate fines, however, are still in force, and ignoring them can cost employers a lot.
The End of the Federal Individual Mandate Penalty
The 2017 Tax Cuts and Jobs Act ended the federal individual mandate penalty starting in 2019. The IRS no longer charges a shared responsibility payment on tax returns for being uninsured. That shift did not touch the employer mandate or other compliance rules. For most employees, there is zero federal tax penalty for being uninsured today.
State-Level Penalties Are in Effect
While the feds don't penalize individuals anymore, several states do. If your employees live in one of these states, or your company is based there, they could face state tax penalties for lacking coverage. As of 2026, the states with active penalties are:
- California: Penalty applies. Exemptions for hardship, religious conscience, short gaps, and more.
- Massachusetts: The original state mandate, with a penalty for adults 18 and older who can afford coverage but don't enroll. Exemptions include low income, religious objections, and short gaps.
- New Jersey: Penalty mirrors the old federal structure. Exemptions for affordability, coverage gaps under three months, and hardships.
- Rhode Island: Penalty applies. Exemptions similar to other state mandates.
- Washington, D.C.: The District also has a penalty. Exemptions for affordability and other qualifiers.
Vermont has an individual mandate that requires residents to report coverage on their state tax return, but the legislature removed the penalty in 2019, so there is no financial cost for going without coverage. Maryland also has no penalty but asks about coverage status on tax forms. Your employees need to know which rules apply where they file.
The Employer Mandate: Still in Effect
For employers, the big penalties are the ACA's Employer Shared Responsibility Provisions, known as the employer mandate. If you're an applicable large employer (ALE), meaning 50 or more full-time equivalent employees, the following two penalties can apply:
- Penalty A (Section 4980H(a)): If you fail to offer minimum essential coverage to at least 95% of your full-time employees and their dependents, and at least one full-time employee gets a premium tax credit from the Marketplace, you trigger the penalty. In 2026, that's $3,340 per full-time employee, minus the first 30.
- Penalty B (Section 4980H(b)): If you offer coverage but it's unaffordable (costs more than 9.96% of household income in 2026 for employee-only coverage) or doesn't provide minimum value (the plan pays less than 60% of covered costs), then for each full-time employee who receives a premium tax credit, the penalty is $5,010 in 2026.
These penalties are indexed annually and can be enormous. For a mid-sized employer with 200 full-time employees that fails to offer coverage to 95% of them, the penalty could exceed $560,000 per year. So even though the individual penalty is gone, employer mandate compliance still matters.
The Penalty Is Nondeductible and Has No Statute of Limitations
The penalty amounts understate the real cost. Employer shared responsibility payments are nondeductible excise taxes under IRC section 275(a)(6), so an employer pays them with after-tax dollars and cannot write them off. A $3,340-per-employee Penalty A is more expensive than it looks on paper. There is a second wrinkle. The IRS has taken the position that no statute of limitations applies to these assessments, because no tax return determines the liability. An employer that failed to offer coverage years ago can still receive a notice and demand for payment today. When budgeting for this exposure, treat the face amount as the floor, not the total.
Indirect Penalties: Claims, Waste, and Retention Risks
Beyond fines, failing to offer health benefits hits the bottom line. The real costs include:
- Higher claims costs: Without preventive care and early intervention, employees delay care until they're sicker and more expensive. That drives up total spend in self-funded plans and raises premiums in fully insured plans.
- Recruitment and retention struggles: In a tight labor market, no health benefits is a major turnover driver. Replacing an employee can cost one-half to two times their annual salary, a hidden penalty many employers overlook.
- Wasted healthcare dollars: An estimated 20-25% of healthcare spending is waste from inefficiency and misaligned incentives. Without a system that rewards prevention, you absorb that waste as higher premiums or claims.
- Fiduciary and compliance risks: Under ERISA, poor administration or communication of benefits, especially in self-funded plans, can lead to lawsuits, penalties, and DOL investigations. WellthCare, the first Health-to-Wealth Benefit System, addresses these hidden penalties by rewarding employees for preventive care with reward dollars at the WellthCare Store and automatic retirement contributions, while reducing employer claims and compliance exposure, all at no new out-of-pocket cost.
How WellthCare Eliminates These Penalties and Risks
Traditional health plans leave you exposed to both regulatory fines and the hidden costs of sick care. WellthCare is a health-to-wealth system, not insurance, that works alongside your existing plan to prevent these penalties. It works in three ways:
- Compliance-grade recordkeeping: WellthCare tracks preventive health actions, maintains compliance records, and reports qualifying activity, so you never manage the compliance burden yourself. This prevents administrative penalties from missed reporting deadlines or failure to document coverage offers.
- Zero-net-cost entry: WellthCare enters as an add-on with no new employer out-of-pocket cost. It immediately channels employees into $0-co-pay preventive care, reducing the likelihood of claims that trigger penalty-level premium increases.
- Automatic retirement funding reduces turnover penalties: By building automatic retirement contributions tied to healthy behavior, employees gain long-term wealth that creates stickiness. Lower turnover means fewer replacement costs, a direct financial benefit that many employers overlook.
Real-World Example
Take a 150-employee company that fails to offer coverage to the required 95% of full-time employees. It faces Penalty A of roughly $400,800 (120 employees after the 30-employee reduction, times $3,340). Adding WellthCare as a zero-net-cost program that drives prevention and reduces waste can help the company avoid that penalty and strengthen its benefits offering, without ripping and replacing the current plan.
For individuals, the federal penalty is $0, but state-level penalties remain active in several states. For employers, the ACA employer mandate penalties remain in effect and can run into the hundreds of thousands of dollars per year. Beyond fines, the indirect penalties of higher claims, turnover, and compliance failures can outweigh the cost of offering a prevention-first benefit. WellthCare is a structural redesign that avoids those penalties while building wealth for employees and savings for employers.
This article is for general information only and is not legal, tax, or medical advice. Employers should consult their own advisors.