ACA Compliance for Small Businesses: 2026 Rules and 2027 Changes

Updated November 2026

The Affordable Care Act (ACA) affects businesses of every size — from what health coverage you must offer to what you report to the IRS each year. The rules are different for employers with fewer than 50 full-time employees and for “applicable large employers” (ALEs) with 50 or more. This guide covers what applies to your business in 2026, and the numbers that change for 2027.

ACA compliance for businesses with fewer than 50 employees

• No employer mandate. Businesses with fewer than 50 full-time employees (including full-time equivalents) are not required to offer health insurance. If you do offer a fully insured small-group plan, it must meet the ACA’s market rules, such as covering essential health benefits. Insurance carriers typically also require the employer to pay at least 50% of the employee-only premium — that is a carrier participation rule, not an ACA requirement.
• Possible tax credit. Employers with fewer than 25 full-time equivalent employees, below-threshold average wages and at least 50% of employee-only premiums paid may qualify for the Small Business Health Care Tax Credit — worth up to 50% of premiums (35% for tax-exempt employers) for two consecutive years when coverage is purchased through the SHOP Marketplace.
• Reporting is usually handled by your insurer. If your plan is fully insured, the insurance carrier files Forms 1094-B and 1095-B. A small employer with a self-insured plan must file those forms itself. Forms 1094-C and 1095-C apply only to ALEs.
• Notice of Coverage Options. Employers covered by the Fair Labor Standards Act must give every new employee a written notice about the Health Insurance Marketplace, whether or not they offer a health plan.
• Continuation coverage. Federal COBRA applies to employers with 20 or more employees. Many states, including Arizona, have “mini-COBRA” continuation laws for insured plans of smaller employers — check your state’s rules or ask your broker.

ACA compliance for businesses with 50 or more employees

• Employer mandate. ALEs must offer minimum essential coverage to at least 95% of their full-time employees (those averaging 30 or more hours a week, or 130 hours a month) and their dependents.
• Affordability and minimum value. The employee’s share of the lowest-cost self-only option must not exceed 9.96% of household income for 2026 plan years, rising to 10.22% for 2027. Because employers rarely know household income, most use an IRS safe harbor based on W-2 wages, rate of pay or the federal poverty line. The plan must also provide minimum value — covering at least 60% of the total allowed cost of benefits.
• Annual reporting. ALEs must file Forms 1094-C and 1095-C with the IRS and provide Form 1095-C information to employees. IRS reporting guidance explains the deadlines and electronic filing requirements.

Employer shared responsibility penalties

The IRS adjusts both penalties each year. Amounts below are annual; penalties are assessed monthly (one-twelfth of the annual amount for each month a failure applies). 2027 amounts are from IRS Revenue Procedure 2026-22.

What’s changed with the ACA recently?

• Higher penalties. Penalty amounts rise each year with premium growth — the 2027 amounts are about 13% higher than 2026.
• A higher affordability percentage. The affordability threshold increased from 9.02% in 2025 to 9.96% in 2026 and 10.22% in 2027, so employees can be asked to contribute more while coverage still counts as affordable.
• Easier Form 1095-C distribution. Under the Paperwork Burden Reduction Act (December 2024), employers may provide Forms 1095-C to employees on request instead of automatically, as long as they give clear, timely notice that the forms are available.
• More time to respond to IRS penalty letters. The Employer Reporting Improvement Act (December 2024) gives employers 90 days to respond to a Letter 226-J and sets a six-year limit on assessing employer mandate penalties.

ACA compliance resources

• Internal Revenue Service: employer mandate, reporting and penalty information (irs.gov)
• Department of Labor: notices, COBRA and plan administration rules (dol.gov/ebsa)
• HealthCare.gov: SHOP Marketplace and small business coverage (healthcare.gov)
• Arizona Department of Insurance and Financial Institutions: Arizona health insurance rules (difi.az.gov)

Frequently asked questions

Managing ACA tracking, affordability testing and reporting is one of the most common reasons growing businesses move to a PEO. Learn how HR outsourcing for small businesses and our employee benefits programs can take ACA compliance off your plate.