ACA Employer Responsibilities for Houston Businesses: Avoiding ESRP Penalties

The Affordable Care Act does not require every business to offer health coverage. The federal employer shared responsibility rules apply to Applicable Large Employers, or ALEs. A Houston employer that understands where it sits before renewal can make a clearer plan for coverage, employee contributions, and reporting instead of reacting after an IRS notice arrives.

This guide explains the main federal framework for 2026 planning. The rules contain measurement methods, transition rules, controlled-group provisions, and annual indexed amounts, so use your actual workforce and plan data and confirm the current year's figures before making a filing or tax decision.

Start with the 50-FTE ALE test

An employer is generally an ALE for a calendar year if it averaged at least 50 full-time employees, including full-time-equivalent employees, during the preceding calendar year. A full-time employee is generally one who averages at least 30 hours of service per week or 130 hours in a month. Hours for employees who are not full-time are combined and divided by 120 to calculate monthly full-time equivalents. The monthly totals are then averaged for the year.

This is not simply a count of people on the payroll on renewal day. Seasonal-worker rules may affect the result, and businesses under common ownership or control are generally aggregated for the 50-FTE test. Each separate entity in an aggregated group may then have its own reporting and potential liability as an ALE Member. Review acquisitions, new entities, and ownership changes with a tax adviser rather than assuming each company stands alone.

The 95% offer standard

An ALE should generally offer minimum essential coverage to at least 95% of its full-time employees and their dependents for each month. If it does not and at least one full-time employee receives a Marketplace premium tax credit, the Section 4980H(a) penalty calculation may apply. The annual 2026 indexed amount is $3,340, multiplied under the statutory formula after the applicable 30-employee reduction is allocated. Verify the amount for each later year because it is indexed.

Eligibility rules and waiting periods must be administered consistently. Track hires, rehires, leaves, transfers, variable-hour employees, and terminations. Enrollment records should show when the offer was made, what coverage was offered, the required employee contribution, and whether the employee enrolled or waived.

Minimum value and affordability

A plan provides minimum value when it is designed to pay at least 60% of the total allowed cost of benefits and includes substantial inpatient hospital and physician services. Minimum essential coverage and minimum value are different tests. Passing the first does not automatically satisfy the second.

For plan years beginning in 2026, an employee's required contribution for the lowest-cost self-only option that provides minimum value is considered affordable at no more than 9.96% of the applicable income measure. Because employers usually do not know household income, the regulations provide three optional affordability safe harbors: Form W-2 wages, rate of pay, and the federal poverty line. Apply the selected safe harbor correctly and consistently to the permitted employee category.

If an ALE offers coverage to a full-time employee but the offer is unaffordable or lacks minimum value, and that employee receives a premium tax credit, the Section 4980H(b) calculation may apply. The 2026 annual indexed amount is $5,010 for each affected full-time employee, subject to the statutory cap. Use the amount for the calendar year under review, not an old article or renewal worksheet.

ACA reporting is part of compliance

ALE Members generally file Form 1094-C and furnish and file Forms 1095-C. The forms report monthly full-time status, coverage offers, employee contribution information, and applicable safe-harbor or relief codes. The IRS uses those filings when evaluating potential ESRP liability.

Reconcile payroll, eligibility, enrollment, and carrier or TPA data before filing. Confirm employee names and Social Security numbers, the authoritative transmittal, full-time counts, the 95% offer indicator, and Lines 14 through 16 on Form 1095-C. Keep transmission receipts and correction records. A reporting error can lead to a proposed assessment even when the underlying offer was compliant.

If you receive a notice, do not ignore it. Our Letter 226-J response checklist explains how to preserve records and reconcile the proposal. PCI Solutions can also support the benefits side of ACA and HR compliance.

What if you have fewer than 50 FTEs?

A business below the ALE threshold is generally not subject to the federal employer shared responsibility payment. Offering group health coverage is optional under that rule, although other federal and Texas requirements can still apply once a plan is offered. Coverage may help with recruiting and retention, but the decision should fit the employer's budget, workforce, and contribution strategy. See our guidance for small-business health insurance in Houston and group health insurance costs.

SHOP and the small-business tax credit

Some small employers may qualify for the Small Business Health Care Tax Credit. The basic federal requirements generally include fewer than 25 full-time-equivalent employees, payment of at least 50% of the employee-only premium under a qualifying arrangement, average wages below an annually indexed threshold, and qualified coverage through the SHOP Marketplace, subject to limited exceptions. The maximum credit is generally 50% of eligible employer-paid premiums for a taxable employer and 35% for an eligible tax-exempt employer, and it is generally limited to two consecutive taxable years.

Do not reuse an old wage threshold. The average-wage limit, phaseout amount, and average-premium tables are indexed or updated. Confirm the final Form 8941 instructions for the tax year and review eligibility with a tax professional before relying on the credit.

A practical annual review

• Calculate ALE status using every month of the prior calendar year and include related entities.
• Identify full-time employees under the measurement method your organization uses.
• Test the 95% offer standard, dependent offer, minimum value, and affordability before the plan year begins.
• Document employee contributions and the affordability safe harbor used.
• Reconcile payroll, eligibility, enrollment, and Forms 1094-C and 1095-C before filing.
• Verify indexed percentages, penalty amounts, tax-credit thresholds, and filing instructions for the applicable year.

A benefits broker can help compare plan designs and organize coverage data. Tax or benefits counsel should address controlled-group questions, penalty disputes, and tax-credit eligibility. If you want a practical review of your current plan and renewal options, contact PCI Solutions.