Quick Article Summary

• Only Applicable Large Employers (ALEs) — generally those with 50 or more full‑time and full‑time equivalent employees — must comply with the ACA’s employer mandate, offering minimum essential health coverage that is affordable and meets the minimum value standard.
• Employers must determine workforce size using IRS rules, counting full‑time and full‑time equivalent employees to decide ALE status.
• ALEs must meet employer shared responsibility provisions and satisfy annual information reporting requirements with the IRS using Forms 1094‑C and 1095‑C.
• New reporting flexibility and affordability threshold updates — such as higher allowable contribution percentages — are important for ACA planning in 2026.

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What Is the ACA Employer Mandate?

Under the Affordable Care Act, certain employers, called Applicable Large Employers (ALEs), must offer health insurance that meets specific standards or potentially face penalties. These standards are part of the employer shared responsibility provisions of the Internal Revenue Code.

Who is considered an ALE?

An employer generally becomes an ALE if it averages 50 or more full‑time employees (including full‑time equivalents) during the prior calendar year. You calculate this by combining full‑time employees and full‑time equivalent hours worked by part‑time staff.

Why ALE status matters

Only ALEs are subject to the ACA’s offer and coverage requirements and possible shared responsibility payments. Employers below the 50‑employee threshold are not required to provide coverage under the ACA, though they may choose to do so voluntarily.

What Coverage Must ALEs Offer?

An ALE must offer coverage that:

Minimum Essential Coverage (MEC)

Health plans must qualify as minimum essential coverage, meaning they satisfy the ACA’s baseline coverage requirements.

Minimum Value

The plan must offer coverage with benefits that cover at least 60% of total expected costs for a standard population — known as the minimum value standard.

Affordability

Coverage must be affordable based on IRS thresholds. For example, in 2026 an employee’s required contribution must generally not exceed 9.96% of their household income (using one of the IRS’s safe harbor methods) to be considered affordable.

If an ALE fails to offer coverage that meets MEC, minimum value, and affordability requirements and at least one employee obtains a premium tax credit on the Health Insurance Marketplace, the employer may be subject to a shared responsibility payment (penalty).

Employer Shared Responsibility: Penalties and Compliance

What Happens if You Don’t Comply with ACA?

Under the ACA’s shared responsibility provisions, employers with 50 or more full-time employees (or equivalents) must offer affordable, minimum value health insurance to at least 95% of full-time employees and their dependents. Failing to meet these requirements can result in significant penalties under Section 4980H of the Internal Revenue Code.

There are two primary types of penalties:

• 4980H(a) Penalty – If you fail to offer coverage to at least 95% of your full-time employees and at least one employee receives a subsidy through the Health Insurance Marketplace, you may owe a penalty of $2,970 per full-time employee, excluding the first 30 employees.
  Example: If you have 100 full-time employees and offer no coverage, the penalty would be (100 − 30) × $2,970 = $207,900 annually.
• 4980H(b) Penalty – If you do offer coverage, but the plan is not affordable or doesn’t meet minimum value, and any employee receives a subsidy, you could face a penalty of $4,460 per employee who receives the subsidy, but only for those specific employees.

Employers can avoid these penalties by carefully monitoring eligibility, affordability thresholds, and plan value.

How to Determine Full‑Time and FTE Employees

To figure out whether your business is an ALE, employers must:

1. Count full‑time employees – those averaging at least 30 hours per week or 130 hours per calendar month.
2. Convert part‑time hours into full‑time equivalents (FTEs) using IRS rules (e.g., total part‑time hours ÷ 120).
3. Average monthly totals over the prior year to determine ALE status for the current year.

Seasonal employee and look‑back measurement methods can affect ALE determination and how coverage offers are calculated.

Reporting Requirements – Forms 1094‑C and 1095‑C

ALEs must file annual ACA information returns with the IRS and furnish statements to employees showing the coverage offer. These include:

• Form 1094‑C – transmittal of employer coverage information,
• Form 1095‑C – details of coverage offered to each full‑time employee.

Although recent reforms reduce automatic distribution requirements, you must still provide Forms 1095‑B or 1095‑C to employees upon request within required timelines.

Accurate reporting helps the IRS determine compliance and whether shared responsibility payments apply.

Recent ACA Developments Relevant for Employers

Easier Reporting Requirements

Recently added laws such as the Paperwork Burden Reduction Act now require employers to provide ACA coverage forms only upon request, rather than automatically distributing them every year. However, covered individuals must be notified of their right to request these forms.

Updated Affordability Thresholds

Annual adjustments to the ACA’s affordability threshold can change how employers design plans to remain compliant. For example, for 2026 the threshold has increased to 9.96%, and employers should ensure contributions remain below this level using accepted IRS safe harbors.

What Texas Employers Should Consider

No State‑Level ACA Mandate

Unlike some states, Texas does not have its own employer health insurance mandate. Compliance depends solely on federal ACA requirements.

Health Plan Design and Communication

Employers must give covered employees a Summary of Benefits and Coverage (SBC) so that they can understand benefits and costs. This is required by all employers regardless of state.

Small Businesses and ACA

Employers with fewer than 50 full‑time equivalent employees are not subject to the employer shared responsibility provisions, but may still choose to offer coverage and may be eligible for tax credits if they qualify.

How The Texas HR Services Firm at The Unit Consulting Can Help

At The Unit Consulting, we guide Texas employers in navigating the Affordable Care Act’s employer provisions. We help you:

• Determine whether you are an Applicable Large Employer (ALE)
• Partner with our network of partners to help you design and administer compliant health coverage that meets MEC, minimum value, and affordability standards
• Update your handbook and employee communication to reflect ACA requirements

Contact us today to ensure your ACA compliance strategy is solid and tailored to your business needs.