ACA Employer Mandate Penalty in Texas (2026): ALE Test and 4980H Amounts
For 2026, an employer is an applicable large employer (ALE) if it averaged at least 50 full-time employees, counting full-time equivalents, during 2025. An ALE that owes a payment under section 4980H owes either $3,340 per full-time employee after the first 30, or $5,010 per full-time employee who receives federal premium assistance on the marketplace, never both.
The rule is federal, so it applies to Texas employers the same way it applies anywhere. We are an independent Texas brokerage in Corpus Christi, licensed statewide. We quote all major carriers and several regional ones, fully insured and level-funded. 40 Google reviews.
Who is an ALE in 2026: the 50 full-time employee test
The IRS sets ALE status by the prior year. An employer with fewer than 50 full-time employees, including full-time equivalents, on average during the prior year is not an ALE for the current year, so 2026 status comes from 2025.
A full-time employee averages at least 30 hours of service a week or 130 hours in a month. Full-time equivalents come from everyone else. For each month, add the hours of the non-full-time employees, counting no more than 120 hours per person, and divide by 120. Then add the full-time count and the equivalents for each month of 2025, add the twelve monthly totals, and divide by 12. The IRS ALE page has the method.
| Step, for one month | Number |
|---|---|
| Full-time employees | 44 |
| Part-time employees, 60 hours each | 12 |
| Part-time hours, 12 x 60 | 720 |
| Full-time equivalents, 720 / 120 | 6 |
| Total, 44 + 6 | 50 |
That table is arithmetic, not a real employer. If every month of 2025 came out at 50, the employer is an ALE for 2026.
Three IRS details change the count. Companies with a common owner, or otherwise related under section 414, are combined for ALE status, though each member's payment is figured separately. Seasonal workers are excepted when the workforce tops 50 for 120 days or fewer in the year. A new employer is an ALE if it reasonably expects, and then has, 50 full-time employees on average.
The two 2026 penalties under section 4980H
An ALE owes the first payment, 4980H(a), when it does not offer coverage to at least 95% of its full-time employees and their dependents, and at least one full-time employee receives premium assistance on the marketplace. It owes the second, 4980H(b), when it offers coverage but the coverage is not affordable or lacks minimum value, or an employee is outside the 95%, and a full-time employee receives premium assistance. The IRS says an ALE can owe one or the other, not both.
| 4980H(a) | 4980H(b) | |
|---|---|---|
| Trigger | Coverage not offered to 95% of full-time employees and their dependents | Coverage offered, but not affordable, or without minimum value, or the employee is outside the 95% |
| Also needed | At least one full-time employee receives premium assistance | Counted per full-time employee who receives premium assistance |
| 2026 amount | $3,340 per full-time employee | $5,010 per full-time employee who receives premium assistance |
| Count | All full-time employees minus the first 30 | Only employees who receive premium assistance |
The amounts come from Rev. Proc. 2025-26, effective for plan and tax years beginning after December 31, 2025. The IRS figures the payment month by month, at one twelfth of the annual amount. The 4980H(b) total cannot exceed what 4980H(a) would have been. Part-time employees and equivalents are not counted in either calculation.
Here is the arithmetic for an ALE with 70 full-time employees:
- 4980H(a): 70 minus 30 is 40, and 40 x $3,340 is $133,600 for a full year.
- 4980H(b): if 4 of those employees receive premium assistance, 4 x $5,010 is $20,040 for a full year.
These examples show the formula only. The IRS says an employer should not make a payment before the IRS contacts it, and Letter 226J is how it notifies an ALE of a potential payment. For smaller ALEs, an offer to all but five full-time employees avoids the first payment when five is more than 5% of their full-time employees.
The amounts rise each year. Rev. Proc. 2026-22 sets $3,780 and $5,670 for 2027.
What counts as an offer that avoids the penalties
The IRS describes three tests: the offer reaches enough full-time employees, the plan provides minimum value, and the cost is affordable.
- Offer: coverage to at least 95% of full-time employees and their dependents, meaning children under 26. Spouses are not dependents for this rule.
- Minimum value: the plan covers at least 60% of the total allowed cost of benefits, as the IRS minimum value and affordability page explains.
- Affordability: the employee's cost for self-only coverage stays under a percentage of income that the IRS indexes each year. It is 9.96% for plan years beginning in 2026.
Employers rarely know household income, so the IRS lists three safe harbors: Form W-2 wages, an employee's rate of pay, or the federal poverty line.
The IRS also allows a monthly or look-back method to identify full-time employees, but not the look-back method for the ALE test. See its full-time employee page.
How a group plan or an ICHRA fits the rule
A group plan, fully insured or level-funded, is one way to make the offer, if it provides minimum value and is affordable.
An ICHRA is the other way. The IRS, DOL, and HHS joint FAQ says an offer of an ICHRA counts as an offer of coverage under the employer mandate. Whether an ALE owes a payment then depends on whether the ICHRA is affordable, which depends in part on the allowance. Our ICHRA vs group plan comparison covers both.
ALEs also file Forms 1094-C and 1095-C, which the IRS uses to determine whether a payment is owed.
Which Texas page answers which question
| Question | Page |
|---|---|
| Do Texas employers have to offer health insurance? | Texas employer health insurance requirements |
| What does a plan cost? | Group health insurance cost for Texas small business |
| Fully insured or level-funded? | Level-funded vs fully insured in Texas |
How we help a Texas employer near the 50 line
We count full-time employees and equivalents the IRS way, then quote fully insured and level-funded plans on the same census, so an employer near 50 sees what an offer looks like before the count is final.
Our broker cost to the employer is $0. On a level-funded quote, we set our PEPM, our per employee per month amount, in the quote, and it sits inside the monthly carrier payment, never as a separate bill. Group coverage can start on the 1st of any month. Carriers generally want about 75% participation and 50% employer contribution.
Frequently asked questions
How much is the ACA employer mandate penalty in 2026?
There are two. The 4980H(a) amount is $3,340 per full-time employee after the first 30. The 4980H(b) amount is $5,010 per full-time employee who receives premium assistance. An ALE owes one or the other, not both.
How many employees make an employer an ALE in 2026?
At least 50 full-time employees, including full-time equivalents, on average during 2025. Full-time means 30 hours a week or 130 hours a month.
Do part-time employees count?
For the ALE test, yes, as full-time equivalents. They do not count when the IRS figures the penalty amount.
Does Texas add its own penalty?
These amounts are federal, under section 4980H of the Internal Revenue Code. They apply the same way in every state.
The short answer
For 2026, an ALE has at least 50 full-time employees, counting equivalents, on average in 2025. The 4980H(a) payment is $3,340 per full-time employee after the first 30. The 4980H(b) payment is $5,010 per full-time employee who receives premium assistance. We compare group plans and an ICHRA on your census. We quote all major carriers and several regional ones, fully insured and level-funded. Our broker cost to the employer is $0. Groups 2 to 250+. We do not cap. 40 Google reviews.
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