The Affordable Care Act (ACA) requires applicable large employers (ALEs) to offer affordable, minimum-value health coverage to their full-time employees (and dependents) or potentially pay a penalty to the IRS. This employer mandate is also known as the pay-or-play rules. Small employers who are not ALEs are not subject to the ACA’s pay-or-play rules.

An ALE may be subject to a pay-or-play penalty if at least one full-time employee receives a premium tax credit for purchasing individual health coverage through an ACA Exchange and the ALE:

• Did not offer health plan coverage to at least 95% of full-time employees and their dependents;
• Offered health plan coverage to at least 95% of full-time employees, but not to the specific full-time employee receiving the credit; or
• Offered health plan coverage to full-time employees that was unaffordable or did not provide minimum value.

This Compliance Overview outlines strategies for ALEs to use to help avoid penalties under the ACA’s pay-or-play rules.

Links & Resources

• IRS final regulations on the ACA’s pay-or-play rules
• IRS Revenue Procedure 2025-25, containing the affordability percentage for 2026 plan years

Forms 1094-C and 1095-C (and related instructions) for ACA reporting by ALEs

This Know Your Benefits article is to be used for informational purposes only and is not intended to replace the advice of an insurance professional. © 2026 Zywave, Inc. All rights reserved.