The IRS has set the ACA affordability threshold for plan years beginning in 2027 at 10.22%, up from 9.96% in 2026 and the highest the percentage has ever reached. For applicable large employers (ALEs) finalizing health plan contribution rates before January 1, the figure determines how much they can require employees to pay for the lowest-cost self-only option without triggering a penalty under the employer mandate. Both the threshold and the penalties are moving simultaneously, which makes the 2027 recalibration more consequential than a routine annual update.
The affordability percentage sets the ceiling on what employees can be required to contribute to self-only coverage. If an employee’s required contribution exceeds 10.22% of their household income or the equivalent figure under one of the IRS’s safe harbor proxies, the coverage is not considered affordable. If that employee then obtains subsidized Marketplace coverage, the employer is exposed to a Section 4980H(b) penalty. For 2027, that penalty is $5,670 per affected employee annually, up from $5,010 in 2026, which itself is an increase from $4,350 in 2025. The 4980H(b) penalty is now $2,670 higher than its 2015 starting point of $3,000.
The higher affordability threshold does give employers more room to pass cost to employees without crossing the mandate line. At the same time, the per-employee penalty for miscalculation has never been higher. An employer that increases contributions without recalculating affordability correctly, or that carries forward a contribution rate set against the 2026 threshold rather than 2027’s, builds penalty exposure before the plan year starts.
The Section 4980H(a) penalty, which applies when an ALE fails to offer minimum essential coverage to at least 95% of its full-time employees, rises to $3,780 per employee annually in 2027, up from $3,340 in 2026. The 4980H(b) penalty applies to individual employees who slip through an affordability or minimum value gap and obtain subsidized Marketplace coverage.
Because the IRS enforces through Letter 226-J, issued after cross-referencing employer filings against individual tax returns, the exposure from a 2027 miscalculation may not surface until 2029 or later, by which point accumulated penalties across a workforce can reach significant totals.
The IRS has three safe harbor methods for testing affordability without knowing employees’ actual household income: the federal poverty line safe harbor, the rate-of-pay safe harbor, and the Form W-2 safe harbor. For calendar-year 2027 plans, the federal poverty line safe harbor produces a maximum employee monthly contribution of approximately $135.93, calculated using the 2026 mainland single federal poverty level of $15,960 multiplied by 10.22%, divided by 12.
The 2027 FPL has not yet been released by HHS, so employers with calendar-year plans use the 2026 figure when finalizing contributions now. Employers using this method need to verify the monthly figure before contributions are finalized.
The Faulk Company v. Kennedy case, in which the Fifth Circuit Court of Appeals heard oral arguments in August 2026, adds procedural complexity to the enforcement picture. A federal district court had previously ruled in Faulk’s favor, finding that the IRS lacked statutory authority to assess an ESRP without a certification from the Department of Health and Human Services.
The Fifth Circuit’s decision remains pending. The case does not change the underlying compliance obligation. ALEs still need to offer affordable, minimum value coverage, but the Fifth Circuit’s decision may affect the procedural options available to employers contesting an assessment.
The timing of the 2027 recalibration is not forgiving. Employers locking in January 2027 contributions are doing so in a November–December window where any error becomes structural. A miscalculation gets embedded in payroll deductions that will run for the full plan year before any IRS inquiry arrives. Running the 2027 affordability calculation against the correct threshold, documenting the safe harbor used, and confirming that payroll deductions match the approved rates before the plan year begins are the steps that determine whether an employer is exposed.
