California Employer Resource · IRS Penalty Math
💸 How Much Is the Penalty for Not Offering Health Insurance?
The IRS Section 4980H(a) assessment formula, a real-world example, and what the penalty costs beyond the check you write.
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🧮 What’s the actual penalty formula?Penalty Math
Under federal law (IRC §4980H), if a business reaches 50 full-time equivalent employees and does not offer compliant health coverage, a baseline assessment is calculated across the company. If just one full-time employee receives a premium tax credit through a state or federal exchange (like Covered California), the IRS can trigger the Section 4980H(a) penalty across your entire full-time staff.
Assessment Formula (2026): (Total Full-Time Employees − 30) × $3,340/year
Real-world example: a California company hits 60 full-time employees and delays setting up a plan:
60 Employees − 30 Exempt = 30 Subject to Penalty
30 × $3,340 = $100,200 per year
That’s $100,200 in annual, non-deductible penalties paid straight out of business profits — without providing a single dollar of coverage to the employees driving those profits.
30 × $3,340 = $100,200 per year
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🛡️ Talk Compliance Support: Know Where Your Plan Stands📉 What does this cost beyond the IRS check?Risk
- The Talent Drain: Your most skilled, experienced workers are usually the target of headhunters. When a competitor down the street offers a health plan, key employees quietly begin looking elsewhere.
- The Cost of Replacement: Replacing a skilled employee costs thousands in recruiter fees, lost output, and retraining time — far exceeding the cost of putting a tax-deductible benefit package in place.
- Company Reputation: Operating without benefits can signal instability to prospective hires, making recruiting harder right when you need to grow fastest.