The IRS has raised the Affordable Care Act limit just as employer mandate penalties reach new highs, putting 2027 contribution rates in focus
The Internal Revenue Service has set the Affordable Care Act (ACA) affordability percentage for plan years beginning in 2027 at 10.22 percent, up from 9.96 percent in 2026, according to the IRS's 2027 indexing adjustments in Revenue Procedure 2026-26. Employers finalizing 2027 contribution rates need to test them against the new figure before the plan year opens.
The penalties are rising at the same time. Under Revenue Procedure 2026-22, the Section 4980H(b) penalty for 2027 is $5,670 per affected employee, up from $5,010 in 2026, according to CBIZ. The Section 4980H(a) penalty, which applies when an employer fails to offer minimum essential coverage to at least 95 percent of its full-time employees, rises to $3,780 from $3,340.
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How the threshold works
Coverage is affordable if an employee's required contribution for the lowest-cost, self-only plan that provides minimum value does not exceed 10.22 percent of household income. Employers rarely know household income, so the IRS allows three safe harbors that substitute a figure the employer controls: Form W-2 wages, rate of pay or the federal poverty line, according to Mercer.
For a calendar-year 2027 plan, the federal poverty line method uses the 2026 poverty guideline of $15,960 for the 48 contiguous states and the District of Columbia. At 10.22 percent, that caps the monthly self-only contribution at $135.93, up from $129.90 for 2026, Mercer said. The rate-of-pay method multiplies an hourly employee's pay by 130 hours a month before applying the percentage, while salaried employees use monthly salary, according to Equifax Workforce Solutions.
The affordability test matters more as workers look to employer coverage.
Enforcement arrives later
The IRS enforces the mandate through Letter 226-J, which proposes a payment based on the Forms 1094-C and 1095-C an employer filed and on the tax returns of its employees, according to the agency. Letters typically arrive years after the plan year they cover. The IRS began mailing Letter 226-J in November 2017 for the 2015 tax year, according to ADP.
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Two procedural protections now apply. Employers have 90 days to respond to a Letter 226-J rather than 30, and the IRS has six years to assess payments for returns due after December 31, 2024, according to WTW and law firm Dickinson Wright.
A court case could add another procedural question. In Faulk Company v. Kennedy, the Fifth Circuit heard arguments on Aug. 5, 2026 on whether the IRS can assess an employer shared responsibility payment without a certification from the Department of Health and Human Services, NFP reported. The government argued that the IRS can make the certification. The court has not ruled, and NFP advised employers to watch for the decision before assuming any change to the IRS process.
Contribution rates set for January 1 apply to all 12 months of the plan year, so an error in the calculation carries across every pay period.
