Common Reasons Employers Get Penalized Under the ACA — How to Stay Compliant with ACA-Track
Navigating the complexities of the Affordable Care Act (ACA) compliance is no easy feat for employers. Failing to meet ACA requirements can lead to costly penalties and complicated IRS audits. For Applicable Large Employers (ALEs), the stakes are especially high, with potential fines running into thousands of dollars per employee per month. This post dives into the most common reasons employers get penalized under the ACA and how leveraging a comprehensive solution like ACA-Track can keep your organization confident and compliant.
Why ACA Compliance Matters to Employers
The ACA, specifically Section 4980H of the Internal Revenue Code, requires ALEs—those with 50 or more full-time equivalent employees—to offer health insurance that is affordable and provides minimum value to full-time employees. Employers who fail to comply may face employer shared responsibility payments (penalties) if even one full-time employee receives a premium tax credit on the Health Insurance Marketplace.
Understanding who qualifies as an ALE and who counts as a full-time employee is essential. Employers must carefully track full-time, part-time, and variable hour employees to accurately determine eligibility and avoid penalties.
Common Reasons Employers Get Penalized Under the ACA
Here are some frequent pitfalls that lead to penalties:
1. Failure to Offer Affordable, Minimum Value Coverage
Employers must provide health coverage that meets the minimum value standard and is affordable based on IRS guidelines. If coverage is unaffordable or lacks minimum value, penalties can be as high as $3,000 per full-time employee who receives a premium tax credit.
2. Not Offering Coverage to Full-Time Employees and Their Dependents
ALEs are required to offer health insurance to all full-time employees and their dependents. Failure to offer coverage to even one eligible employee can trigger penalties.
3. Inaccurate Tracking of Employee Hours
Misclassification or failure to accurately track hours worked by part-time or variable hour employees is a huge compliance risk. Employers who don’t document actual hours worked cannot prove that certain employees are ineligible for coverage due to insufficient hours, exposing the company to penalties if those employees seek marketplace subsidies.
4. Late or Incomplete Filing of ACA Reporting Forms
Form 1095-C must be furnished to employees by January 31 (with some IRS extensions), and Form 1094-C must be electronically filed with the IRS by March 31. Late filing or incorrect submissions can lead to penalties up to $270 per return (or $540 if not furnished to employees), with maximums reaching into the hundreds of thousands depending on company size.
5. Incorrect or Missing Information on IRS Forms
Errors on ACA reporting forms—such as incorrect employee hours, missing coverage offers, or inaccurate identification data—can result in IRS penalty notices such as the Letter 226-J, which details proposed fines and requires prompt employer response.
6. Failure to Respond to IRS Notices
Ignoring IRS penalty letters or failing to timely respond to IRS inquiries can escalate penalties and complicate resolution efforts.
How ACA-Track Helps Employers Avoid Penalties
ACA-Track is a proven ACA compliance solution designed to tackle every aspect of ACA tracking and reporting, making compliance easier and more accurate:
Comprehensive Data Collection
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Collects actual hours worked for 100% of your employees—full-time, part-time, variable hour, substitute, and paraprofessionals.
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Integrates seamlessly with payroll, HRIS, and financial management systems.
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Captures data from multiple sources such as time clocks, manual timesheets, and mobile device entries.
Intelligent Monitoring and Alerts
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Monitors employee eligibility thresholds in real time.
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Provides advance alerts for eligibility changes, waivers, leaves, and other events.
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Tracks measurement, administrative, and stability periods to ensure timely coverage offers.
Accurate Reporting with Confidence
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Generates IRS-compliant Forms 1094-C and 1095-C, including electronic XML filing capabilities.
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Supports federal and state ACA reporting requirements.
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Fixes errors in reporting to prevent IRS penalties.
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Maintains all ACA data securely for audit readiness.
User-Friendly and Customizable Interface
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Customizable dashboards let you view and analyze ACA data your way.
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Color-coded warnings help identify errors and unusual data immediately.
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Flexible configuration for employer-specific rules like affordability percentages and waiver codes.
Security and Compliance
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Cloud-based platform with SAS 70 and SSAE 16 certifications.
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SOC 2 type 2 compliant, encrypting sensitive personal data.
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Uses secure HTTPS protocols for all data transfers.
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Does not host HIPAA medical information, minimizing risk.
Dedicated Client Success Advisors
Every client is assigned a dedicated advisor to guide their ACA compliance journey, providing expert support beyond just software.
Don’t Let ACA Penalties Catch You Off Guard
The cost of noncompliance with the ACA can be steep—from per-employee monthly fines to IRS penalty letters like the dreaded 226-J. Employers must stay vigilant in tracking employee hours, offering compliant coverage, and submitting accurate, timely IRS filings.
Choosing a reliable ACA compliance partner like ACA-Track ensures your company meets ACA obligations without the hassle and risk of errors. With its robust data integration, monitoring tools, and expert support, ACA-Track empowers employers to collect, monitor, and report ACA data with confidence—keeping penalties at bay and your focus on growing your business.
Ready to simplify your ACA compliance and avoid costly penalties?
Explore how ACA-Track can support your business today.
Sources & Additional Reading:
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IRS Letter 226-J Details: IRS.gov
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ACA Employer Shared Responsibility Provisions
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Affordable Care Act Information Returns (AIR) Specifications
