Key Takeaways

  • The Affordable Care Act (ACA) requires Applicable Large Employers (ALEs) with 50 or more full-time employees to report health coverage details to the IRS annually.
  • Key forms include 1094-C (transmittal summary) and 1095-C (employee coverage statement).
  • Healthcare employers must file electronically if they submit 10 or more returns in a year.
  • Filing deadlines are March 2, 2026 (employee copies) and March 31, 2026 (IRS electronic filing).
  • Failure to file or inaccurate reporting can lead to penalties of up to $310 per return, with higher fines for intentional disregard.
  • ACA reporting for healthcare employers ensures compliance with employer shared responsibility provisions and helps avoid IRS Letter 226J penalty notices.

ACA Reporting

ACA reporting continues to be a significant concern for employers. ACA, also referred to as the Affordable Care Act or Obamacare, significantly affects employee benefits. Enacted in 2010 under the Obama Administration, ACA requires employers falling into the category of Applicable Large Employers (ALEs) to disclose to the Internal Revenue Service (IRS) whether it offered the dependent children of its full-time employees’ to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan. A company qualifies as an ALE if it employs more than 50 full-time employees.

The ACA also requires those ALEs report health coverage information to the IRS and employees on a yearly basis. The IRS then takes the information and utilizes it to enforce the ACA’s “shared responsibility” provisions and order premium tax credits.

If an ALE does not provide affordable health care coverage, the company may be penalized one or more employees qualifies for a premium tax credit and uses such credit to purchase coverage in the health insurance exchange. As such, an employer must be required to provide such affordable coverage so that its employees need not utilize the external health care insurance exchange to find health benefits.

Employer Shared Responsibility

Also referred to as the employer coverage mandate, the employer shared responsibility has specific provisions for ALEs, including a requirement that the company offer a MEC that is both affordable and provides some type of value to its employees working at least 30 hours a week; if the company doesn’t provide this, it will be penalized.

To fully prepare for this type of responsibility, mid-size employers should identify how many full-time employees it has. Again, if the employee works at least 30 hours a week, he or she is considered a full-time employee under ACA, even if the employee is only a short-term employee or contractor.

Large employers subject to these provisions should keep track of all processes to verify that information is accurate with regard to the number of employees, the type of healthcare benefits provided, and ensuring that they offer a MEC that is affordable and provides a level of value to those full-time employees.

Determining Employer Eligibility Under ACA

Healthcare employers must determine their status as an Applicable Large Employer (ALE) to understand their ACA obligations. An ALE is defined as an employer with 50 or more full-time employees, including full-time equivalents, during the previous calendar year.To calculate ALE status:

  • Add up all full-time employees (those working 30+ hours per week or 130+ hours per month).
  • Include part-time employees by converting their hours into full-time equivalents.
  • Combine the total across all entities within a controlled group.

Once classified as an ALE, the organization is subject to employer shared responsibility provisions, requiring it to offer minimum essential coverage (MEC) that is affordable and provides minimum value to eligible employees. Employers that fail to comply may face penalties under Section 4980H(a) or (b) of the Internal Revenue Code.

Reporting Requirements

ACA reporting requirements apply to all ALEs. Such reporting instructions can be found in Section 6055 and Section 6056 of the IRS Tax Code. Both sections can be found on the following forms:

  • Form 1095-C (Employer-Provided Health Insurance Offer and Coverage)
  • Form 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage)
  • Form 1094-B
  • Form 1094-B

Employers will always fill out “C” reports, which are used to identify the employer shared reporting requirements and penalties as well as employees’ premium tax credit eligibility; however, B reporting is filled out by insurance carriers. An employer will complete Form 1095-C for each full-time employee and subsequently distribute the form to each employee by January 31 of each year.

For those large ALEs, ACA information consisting of all 1095-C forms as well as one Form 1094-C must be reported to the IRS by February 28 or alternatively, must be filed online by March 31. Such forms identify the specific healthcare coverage each full-time employee uses.

Keep in mind that ACA reporting requirements vary based on the size of the ALE and type of healthcare coverage the employer offers its employees:

  • Employers with 50 or more full-time employees must report, even if they don’t offer healthcare coverage.
  • Employers with less than 50 full-time employees must report only if they offer self-insured health coverage.
  • If the employer is part of a controlled group, it must combine the employees of each company when making the calculation for reporting purposes. A controlled group is one in which two or more companies are treated as a single employer. See sections 414(b), (c), (m), and (o) of the Internal Revenue Code for additional guidance.

ACA Reporting Deadlines and Methods

The ACA reporting deadlines for healthcare employers are critical to avoid penalties. For the 2025 coverage year (filed in 2026):

  • Employee Copies (Form 1095-C): Due March 2, 2026
  • Paper Filing with IRS (Forms 1094-C & 1095-C): Due February 28, 2026
  • Electronic Filing with IRS: Due March 31, 2026

Since 2024, employers filing 10 or more information returns must submit electronically through the ACA Information Returns (AIR) system. Healthcare employers should verify their Transmitter Control Code (TCC) registration and test files before submission.

Employers should also retain copies of forms and proof of submission for at least three years to respond to IRS inquiries.

1094-C and 1095-C

The information included on Form 1094-C assists the IRS in determining if a Section 4980H(a) and/or Section 4980H(b) penalties applies. Such information on this form also includes whether the employer offered a sponsored health benefits, the number of full-time employees each ALE has, whether the healthcare offered to the employees was both affordable and provided some sort of value, and whether the ALE was eligible for transition relief. Form 1095-C details employee-level information about the health coverage offered as well as the plan each employee uses, name and the number of dependents.

An ALE may be subject to two shared responsibility penalties if the company failed to offer affordable MEC. If MEC was not offered to at least 95% of its full-time employees, and one or more of those employees received a premium tax credit for purchasing health coverage through a state insurance marketplace, then the employer will be penalized under Section 4980H9(a). Additionally, the employer may incur a second penalty under Section 4980H(b) if the ALE, while offering the MEC to at least 95% of its full-time employees, has one or more employees that receive a premium tax credit for purchasing health coverage through a state insurance marketplace.

Understanding the ACA Forms and Codes

  • Form 1094-C: Serves as a cover sheet summarizing the employer’s total filings, the number of employees offered coverage, and the employer’s contact information.
  • Form 1095-C: Sent to each full-time employee, detailing the coverage offered, affordability codes, and safe harbor codes.

Healthcare employers must ensure the accuracy of Line 14–16 codes, which identify the months coverage was offered, the employee’s share of costs, and whether safe harbor rules apply.Common code examples include:

  • 1A – Qualifying offer of affordable coverage with MEC
  • 1E – MEC offered to employee and dependents
  • 2C – Employee enrolled in coverage
  • 2F/2G/2H – Safe harbor affordability calculations

Correct coding ensures compliance and helps avoid IRS Letter 226J, which notifies employers of potential shared responsibility penalties.

Cadillac Tax

Cadillac tax is a nondeductible 40 percent excise tax incurred on employers for the cost of health coverage that exceeds annual limits. The plan will not be implemented until 2018, but it is currently one of the more debated provisions as it fines employers for offering benefit-rich plans to employees.

Penalties for ACA Information Returns

Penalties will apply in the following circumstances:

  • Incorrect employee name and/or SSN, which carries a penalty of $260/statement, up to a maximum of $3,178,500/year
  • Non-filing
  • Late-filing
  • Missing information
  • Incorrect information being provided, which carries a penalty of $260/return, up to a maximum of $3,178,500/year
  • NOTE that the maximum penalty for both the failure to file and provide information is $6 million/year

Penalty relief is possible if the employer makes a good faith effort to comply with ACA reporting requirements.

Avoiding Common ACA Reporting Errors

The most common ACA reporting mistakes for healthcare employers include:

  • Mismatched employee data: Incorrect Social Security Numbers or EINs.
  • Late or missing forms: Failing to distribute 1095-Cs by the deadline.
  • Improper affordability codes: Misclassifying coverage affordability.
  • Omitting terminated or rehired employees: Incomplete data reporting.

Employers can reduce errors by using payroll integration systems, performing TIN (Taxpayer Identification Number) matching, and conducting pre-filing audits.For the 2025 filing year, penalties can reach up to $310 per form for failures to file or furnish, with a maximum of $3,783,000 per calendar year. Intentional disregard of ACA reporting can double these penalties.

Electronic Filing of ACA

Many ALEs file electronically with the IRS, since the IRS established a new electronic filing system called the Affordable Care Act Information Return System (AIR). Notably, electronic filing is required for those ALEs that file 250 or more Forms 1095-C. Regardless, all ALEs should file electronically as that is the recommended standard of filing.

ACA Filing Best Practices for Healthcare Employers

Healthcare organizations can streamline ACA reporting by:

  • Centralizing data from payroll, benefits, and HR systems to ensure accuracy.
  • Automating ACA compliance tracking, such as hours worked and coverage eligibility.
  • Testing electronic files early using the IRS AIR test environment.
  • Maintaining internal audit trails documenting how employee eligibility and coverage affordability were determined.

Employers should designate a compliance lead or benefits administrator responsible for monitoring IRS updates, as ACA reporting thresholds and deadlines may change annually.

Combined ACA Reporting for ALEs

  • ALEs with former employees who left the firm within one year, i.e. COBRA participants, retirees, who are enrolled in the company’s self-insured plan must file under IRS Section 6055 on either Form 1094-B or Form 1095-C, depending on if the ALE is an insurance carrier.
  • ALEs with former employees and non-employees must ensure that the company has those former employees’ SSNs to input into Form 1095-C.

Non-ALEs Reporting

Forms 1094-B and 1095-B will be used by non-ALEs to report coverage for it employees enrolled in a self-insured health plan for more than one month out of the reporting year. Such employers need to complete Part I, Part II, and Part IV; however, Part II is not required.

ACA Compliance for Small Healthcare Employers

Non-ALE healthcare employers (with fewer than 50 full-time employees) are generally exempt from ACA employer reporting under Section 6056 but may still have obligations under Section 6055 if they sponsor a self-insured health plan.These employers must file:

  • Form 1094-B (transmittal summary)
  • Form 1095-B (individual coverage details)

Even small healthcare practices should maintain accurate records of coverage offerings and verify with their insurance carriers who is responsible for filing ACA forms on their behalf.

Frequently Asked Questions

  1. What does ACA reporting for healthcare employers involve?
    It involves filing Forms 1094-C and 1095-C with the IRS to report whether full-time employees were offered minimum essential coverage and whether that coverage was affordable.
  2. Who needs to file ACA reports?
    Applicable Large Employers (ALEs) — those with 50 or more full-time or equivalent employees — must file annually to comply with the ACA’s Employer Shared Responsibility rules.
  3. What happens if I miss the ACA filing deadline?
    Late or inaccurate submissions can lead to penalties of up to $310 per return, with higher fines for intentional noncompliance.
  4. How does ACA reporting impact healthcare payroll systems?
    Payroll data determines employee eligibility, hours worked, and affordability of coverage, making accurate integration with HR systems essential.
  5. Can small healthcare practices avoid ACA reporting?
    Yes, if they have fewer than 50 full-time employees and are fully insured. However, self-insured small employers must still file 1094-B and 1095-B forms.

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