Do employers under 50 have to offer health insurance?
No. If your company is not an applicable large employer under the ACA, the employer shared-responsibility rules do not require you to offer health coverage, and you do not owe the associated IRS payments for that year. HealthCare.gov states the same point for employers with 1 to 50 full-time equivalent employees: you can choose to offer coverage, including through SHOP, but you do not have to, and there is no penalty if you do not.
Many companies with 2 to 50 employees still offer coverage, or contribute to it through an ICHRA or a QSEHRA, because a considered benefits program helps them hire and keep people. That is a business decision, not a mandate.
This page is a plain-language briefing, not a determination of your status and not legal advice.
Who is an applicable large employer
The IRS decides applicable large employer — ALE — status year by year, using the prior calendar year. You are an ALE for the current calendar year if you averaged at least 50 full-time employees, including full-time equivalent employees, during the prior year.
For this purpose:
- A full-time employee for a month is an employee who averages at least 30 hours of service per week, or at least 130 hours of service in the month.
- Full-time equivalents are a conversion of non-full-time hours: add the hours of service of all non-full-time employees for the month (capping each person at 120 hours), then divide by 120.
- Add full-time employees and full-time equivalents for each month, add those monthly totals, divide by 12, and drop any fraction. If the result is 50 or more, you are an ALE for the next calendar year.
Part-time hours can push a company over the line even when it has fewer than 50 people working 30 hours a week. The IRS publishes worked examples of this math.
Related companies under Internal Revenue Code § 414 are generally combined for the 50-employee test. If the combined group is an ALE, each member with employees is an ALE member, even if that member would be small on its own. Shared-responsibility liability is still determined member by member.
There is a seasonal-worker exception: an employer is not treated as having more than 50 full-time employees (including equivalents) if the workforce exceeds 50 for 120 days or fewer during the calendar year and the employees over 50 in that period are seasonal workers.
A new employer that did not exist in the prior year is an ALE for the current year if it reasonably expects to employ, and actually does employ, an average of at least 50 full-time employees, including equivalents, during the current year.
If you are not an ALE, the shared-responsibility payments and the Form 1094-C / 1095-C information-reporting duties that apply to ALEs do not apply to you for that year. You may still offer coverage, and you may still have other filing obligations.
You can still offer coverage
Employers under the ALE line have a full set of options this practice is built to advise on:
- A fully insured group plan, including SHOP coverage
- A level-funded plan, where available
- An ICHRA
- A QSEHRA, if you are not an ALE and you do not offer a group health plan
If you have fewer than 25 FTEs and you offer SHOP coverage under a qualifying arrangement, you may also be in range for the Small Business Health Care Tax Credit.
When you grow past 50
Crossing the ALE line is a planned change, not a surprise you deal with after year-end.
In the year you become an ALE, the shared-responsibility rules generally expect you to offer minimum essential coverage to at least 95% of full-time employees (and their dependents — for this offer rule, dependents means children, not necessarily spouses), or you may owe an IRS payment if at least one full-time employee receives a premium tax credit. Coverage that is offered should also be affordable and provide minimum value if you want to avoid a second type of payment. Minimum value means the plan's share of allowed costs is at least 60%. Affordability for plan years beginning in 2026 is measured against a required contribution percentage of 9.96% of household income; for plan years beginning in 2027, that percentage is 10.22%. The IRS allows W-2, rate-of-pay, and federal poverty line safe harbors because employers generally do not know household income.
For calendar year 2026, the IRS indexed the annualized § 4980H(a) payment at $3,340 per full-time employee, after reducing the full-time count by 30, and the annualized § 4980H(b) payment at $5,010 for each full-time employee who receives a premium tax credit because coverage was not offered or was not affordable or did not provide minimum value. The (b) payment is limited so it does not exceed the amount that would have been due under (a). These are statutory indexed amounts, not a bill we can compute from a website form, and they can change in later years.
ALEs must also file Form 1094-C with the IRS and furnish Form 1095-C to each employee who was full-time for any month of the calendar year.
A QSEHRA is not available to an ALE and is not available if you offer a group health plan. Moving from a QSEHRA to an ICHRA or to a group plan should be designed in the year before you cross the line. An ICHRA can be used by an ALE if the offer is tested for the shared-responsibility rules. We will help you map that transition; your tax advisor should confirm ALE status and reporting.
Frequently asked questions
We have 40 full-time people and a large part-time roster. Are we an ALE?
You might be. Part-time hours convert to full-time equivalents and are added to the full-time count. The only way to know is to do the monthly math for the prior year.
If we are under 50, is there any federal penalty for not offering coverage?
The employer shared-responsibility payments apply to applicable large employers, not to employers that are not ALEs. Other federal or state rules can still apply to a plan you choose to offer. This page is about the ACA employer mandate, not a promise that no other rule exists.
Do we have to cover spouses once we become an ALE?
The shared-responsibility offer rule is about full-time employees and their dependents, and the IRS treats dependents as children for this purpose. Many employers still choose to offer spouse coverage. That is a design choice, not the same as the mandate test.
We just opened this year. How are we counted?
A new employer that was not in existence in the prior year uses a current-year test: whether it reasonably expects to employ, and actually does employ, an average of at least 50 full-time employees, including equivalents, during the current year.