2027 ACA pay-or-play changes: What employers need to know

Planning your 2027 health benefits? The Affordable Care Act (ACA) affordability percentage and employer mandate penalties are increasing, making this a good time to review employee contributions and coverage offers.

The goal isn’t just to understand the numbers. It’s to use them to make thoughtful benefits decisions that support your business and your employees.

Key takeaways

• The affordability percentage rises to 10.22%, up from 9.96%, for plan years beginning in 2027.
• Annualized employer mandate penalties increase to $3,780 and $5,670, depending on the coverage failure, for calendar year 2027.
• Affordability safe harbors give employers alternatives to household income when evaluating employee contributions.

Which employers are subject to ACA pay-or-play rules?

The ACA’s employer shared responsibility rules, also called “pay-or-play,” apply to applicable large employers (ALEs), generally employers averaging at least 50 full-time employees, including full-time equivalents, during the preceding calendar year. Related employers may need to count their workforces together.

An ALE may face a penalty if its coverage offers don’t meet the applicable requirements and at least one full-time employee receives a premium tax credit to purchase health insurance through the Marketplace.

What is the 2027 ACA affordability percentage?

For plan years beginning in 2027, the affordability percentage is 10.22%, according to Section 3.02 of IRS Revenue Procedure 2026-26.

For employer mandate purposes, affordability generally focuses on the employee’s contribution for the lowest-cost, self-only coverage that provides minimum value—not the additional cost of family coverage.

The timing matters: a noncalendar-year plan that begins in 2026 continues using 9.96% until its new plan year begins in 2027.

A higher percentage may give employers more flexibility when setting contributions. It doesn’t mean increasing employees’ costs is automatically the right choice. Consider affordability for your workforce alongside your budget and compliance requirements.

How do ACA affordability safe harbors work?

Because employers generally don’t know employees’ household incomes, they can use three optional safe harbors: federal poverty level, rate of pay, and Form W-2 wages. Each has specific conditions.

Here’s what the 2027 percentage looks like in practice:

• Federal poverty level: Using the 2026 one-person guideline of $15,960 for the mainland states, the calendar-year 2027 calculation produces approximately $135.93 per month. That amount isn’t universal: Alaska and Hawaii have different guidelines, and noncalendar-year plans must consider the applicable guideline and timing.
• Rate of pay: For an illustrative employee whose hourly rate remains $20, multiplying $20 by 130 hours and 10.22% produces $265.72 per month.
• Form W-2: For an illustrative full-year employee with $45,000 in Box 1 wages, applying 10.22% and dividing by 12 produces $383.25 per month. Use Box 1 wages rather than assuming gross salary is the same amount.

A rounding detail worth checking: The federal poverty level example produces an exact monthly amount of $135.926. Although commonly rounded to $135.93, rounding down to $135.92 keeps a whole-cent contribution below that calculated threshold.

Review the applicable safe-harbor conditions before treating any example as your organization’s contribution limit.

What are the ACA employer mandate penalties for 2027?

Section 2 of IRS Revenue Procedure 2026-26 establishes two increased annualized penalty amounts for 2027.

Section 4980H(a): Not offering coverage broadly enough

An ALE may face this penalty if it doesn’t offer minimum essential coverage to at least 95% of full-time employees and their eligible dependents, and at least one full-time employee receives a Marketplace premium tax credit.

The 2027 annualized amount is $3,780, equivalent to $315 per month, applied to the relevant full-time employee count, generally minus 30, subject to applicable rules.

Section 4980H(b): An individual coverage offer falls short

Even when an employer meets the 95% threshold, it may face this penalty if a full-time employee receives a premium tax credit because that employee wasn’t offered coverage, or the offer wasn’t affordable or didn’t provide minimum value.

The 2027 annualized amount is $5,670 per affected employee, equivalent to $472.50 per month. The total is capped at the employer’s hypothetical Section 4980H(a) penalty.

These are annualized figures, not automatic annual bills. The calculation depends on the applicable months and circumstances.

How does the expiration of enhanced tax credits affect planning?

The American Rescue Plan Act of 2021 temporarily expanded premium tax credit eligibility and increased credit amounts for 2021 and 2022. The Inflation Reduction Act of 2022 extended those enhancements through 2025, after which they expired.

Following expiration, the general income eligibility range returned to 100%–400% of the federal poverty level, with other eligibility requirements applying. People who remain eligible may also receive smaller credits than under the enhanced provisions.

This is ongoing planning context, not a new 2027 change. Don’t assume narrower subsidy eligibility eliminates your employer mandate exposure.

What should employers review before renewal?

Before finalizing your benefits decisions:

• Confirm whether your organization is an ALE.
• Review coverage offers and employee eligibility.
• Select and document your affordability safe harbor.
• Test proposed contributions using the correct plan-year percentage.
• Check payroll assumptions and enrollment records.
• Explain contribution or coverage changes clearly to employees.

Work with your benefits adviser and legal counsel to evaluate your organization’s circumstances.

The Bright Side

You don’t have to approach renewal as a choice between managing costs and supporting your people. Start with clear information, understand your options, and build compliance considerations into your planning.

Daybright Financial helps employers simplify employee benefits and compliance so they can focus on their people. Whether you’re reviewing your benefits strategy or making employee communications clearer, let’s talk about your next steps.

Connect with Daybright.

Source: Adapted from Zywave content. © 2026 Zywave, Inc. All rights reserved.

This post is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. Content sourced from Zywave.

• Category: News
• Tag: Compliance, Employee Benefits