What Is the Penalty for Large Employers Under the ACA?
The Affordable Care Act (ACA) has significantly changed the landscape of health insurance coverage in the United States, particularly impacting Applicable Large Employers (ALEs)—those with 50 or more full-time employees or equivalents. If your organization falls into this category, it’s crucial to understand the potential penalties for non-compliance with ACA regulations and how to avoid them. In this post, we’ll explore the penalties large employers may face, the specifics of compliance, and how a comprehensive ACA compliance solution like ACA-Track can help your company stay ahead of these challenges.
Understanding Applicable Large Employers (ALEs) and ACA Penalties
The ACA imposes certain requirements on ALEs under Section 4980H of the Internal Revenue Code. These employers must:
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Offer affordable health coverage that meets minimum value standards to all full-time employees (and their dependents).
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Provide proper ACA reporting to both employees and the IRS.
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Avoid triggering employer shared responsibility payments, commonly known as penalties.
What Determines an ALE?
An ALE is generally any employer with 50 or more full-time employees, including full-time equivalents (FTEs), based on the previous year’s workforce. Full-time employees are those working an average of 30 or more hours per week or 130 hours per month.
How Are the Penalties Calculated?
If an ALE fails to comply with ACA coverage rules, the IRS may impose Employer Shared Responsibility Payments based on two types of penalties:
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Penalty A (Failure to Offer Coverage):
If the ALE does not offer coverage to at least 95% of full-time employees and their dependents, and if at least one full-time employee receives a premium tax credit for Marketplace coverage, the penalty is:
$2,000 per full-time employee, excluding the first 30 employees, per year. This amount is prorated monthly. -
Penalty B (Failure to Provide Affordable or Minimum Value Coverage):
If coverage is offered but is either unaffordable or does not meet the minimum value standard, the penalty is:
$3,000 per full-time employee who receives a premium tax credit—but never more than the amount calculated under Penalty A for the entire workforce. This penalty is also prorated monthly.
Additional Penalties: Reporting Failures
Besides the shared responsibility payments, employers can face penalties for late, incomplete, or inaccurate ACA reporting:
| Filing Delay | Penalty per Return | Maximum Penalty* |
|---|---|---|
| Filed < 30 days late | $50 | $194,500 |
| Filed 31 days to Aug 1 late | $110 | $556,500 |
| Filed after Aug 1 or not filed at all | $270 | $1,113,000 |
*Penalties double if the forms are neither filed nor furnished to employees.
Employers must file Forms 1094-C and 1095-C annually to report health coverage offers and coverage details. Failure to file or furnish these forms correctly can lead to costly penalties.
What Happens If Your Company Receives an IRS 226-J Penalty Letter?
The IRS may send a Letter 226-J, which details the penalties assessed against your company for ACA non-compliance. This letter includes:
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A breakdown of penalties per month.
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A list of employees who received premium tax credits.
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Instructions and a deadline (usually 30 days) to respond or dispute the penalty.
Ignoring a 226-J letter can lead to escalated enforcement actions, so it’s vital to act quickly, gather documentation, and consider legal or ACA compliance expert help.
How to Stay ACA-Compliant and Avoid Penalties
Managing ACA compliance requires diligent tracking and reporting of employee hours, benefits eligibility, and coverage offers. This is especially challenging with variable-hour, part-time, and seasonal workers.
Many employers find that using a dedicated ACA compliance service streamlines this complex process. One standout solution is ACA-Track — a proven platform designed to simplify and automate ACA tracking, reporting, and compliance.
Why Choose ACA-Track?
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Comprehensive Tracking: Collects and monitors hours worked for all employee types from multiple data sources (payroll, timekeeping, HRIS).
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Advanced Monitoring: Alerts for eligibility thresholds, waivers, leaves, and coverage status.
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Accurate Reporting: Prepares and files federal and state ACA forms (1094-C, 1095-C) electronically, including IRS XML file submission.
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Error Correction: Detects and helps fix ACA reporting errors to minimize penalty risks.
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User-Friendly Interface: Customizable dashboards, snapshot summaries, and filters make data management easy.
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Secure & Reliable: SAS 70 certified data centers with encrypted data transfers ensure your employee data is protected.
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Dedicated Support: A Client Success Advisor helps your business with setup, training, and ongoing support tailored to your needs.
The Bottom Line
ACA penalties can be steep, ranging from thousands to millions of dollars depending on the size of your workforce and nature of non-compliance. Accurate employee tracking, timely and accurate reporting, and responsive management of IRS correspondence are critical to avoid these costly fines.
If you are a large employer looking for a trusted partner in ACA compliance, consider exploring ACA-Track. Their comprehensive services and expert support can give you peace of mind and help keep your business compliant.
Helpful Resources
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IRS Letter 226-J Overview: Understanding Your Letter 226-J
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IRS ACA Reporting Schemas: Affordable Care Act Information Returns Schemas
Feel free to reach out if you have questions about ACA compliance or need help managing your ACA reporting and penalties. Navigating ACA complexities is easier with the right tools and partners!
