The Affordable Care Act (ACA) requires certain employers to offer health insurance to full‑time employees or face penalties. These rules apply only to Applicable Large Employers (ALEs)—businesses averaging 50+ full‑time and full‑time equivalent (FTE) employees in the prior calendar year.
Applicable Large Employer (ALE)
An employer is an ALE if:
- It averaged 50+ full‑time employees (30+ hours/week or 130+ hours/month)
- Plus full‑time equivalents (total part‑time hours ÷ 120)
- Determined annually based on the prior year
ALE status applies to:
- A single employer
- Or an Aggregated ALE Group (related entities treated as one employer)
FTEs count only for determining ALE status. Coverage is required only for full‑time employees.
Employer Coverage Requirements
ALEs must:
- Offer health insurance to 95% of full‑time employees
- Cover dependents up to age 26
- Not required to cover spouses
- Offer affordable coverage (employee cost ≤ 9.02% of income for 2025)
- Provide minimum value (plan pays at least 60% of costs)
Employees may decline coverage, but if the employer offers an affordable, minimum‑value plan, the employee is not eligible for Marketplace subsidies.
If the employer is not an ALE, it is not subject to the mandate or reporting rules.
Employer Shared Responsibility (Pay‑or‑Play)
ALEs must either:
- Offer affordable, minimum‑value coverage to full‑time employees and dependents or
- Potentially owe an Employer Shared Responsibility Payment (ESRP)
Only one type of ESRP can apply at a time.
- ALE Fails to Offer Coverage to 95% of Full‑Time Employees
Annual penalty (2025): $2,900 × (full‑time employees − 30) Applies even if some employees have other coverage.
- ALE Offers Coverage, but It Is Not Affordable or Lacks Minimum Value
Annual penalty (2025): $4,350 per full‑time employee receiving a Marketplace subsidy Capped at the amount owed under the first penalty.
Penalties apply only if at least one full‑time employee receives a premium tax credit. Part‑time employees receiving subsidies do not trigger penalties.
Penalties are assessed monthly and are not tax‑deductible.
Employer Reporting Requirements
ALEs must report coverage information to the IRS and employees.
Required forms:
- Form 1095‑C — Employee‑level coverage information
- Form 1094‑C — Transmittal to IRS
Deadlines:
- To IRS:
- Feb 28 (paper)
- Mar 31 (electronic)
- To employees:
- Jan 31
Electronic filing required for 250+ returns of the same type.
Form 1095‑C must be filed for each full‑time employee for all 12 months, even if coverage was not offered every month.