ACA Reporting for Employers: Key Requirements, Common Pitfalls, and Practical Guidance

Introduction

For many employers, ACA reporting remains one of the more complex and time-sensitive compliance obligations tied to employee benefits. While the requirements have been in place for years, the details continue to create confusion, especially as organizations evolve their workforce structures, funding strategies, and plan designs.

This challenge is compounded by the fact that ACA reporting is not a single requirement. Employers may have multiple obligations depending on their size, plan type, and organizational structure. Missteps often stem from misunderstandings about who must report, which forms apply, and how to accurately complete them.

This article breaks down the core components of ACA reporting, highlights common areas where employers run into issues, and provides practical clarity around coding, affordability, and compliance risk.

Key Takeaways

• ACA reporting obligations depend on both employer size (ALE status) and plan funding type
• Most employers must file electronically and often rely on third-party vendors
• The most common errors occur in Form 1095-C coding, especially Lines 14–16
• Affordability is primarily a concern when employees waive coverage and seek exchange subsidies
• Workforce changes (new hires, status changes, leaves) are the biggest drivers of reporting complexity
• Errors on Form 1094-C, particularly failing to meet the 95% offer threshold, can trigger significant penalties

Understanding Who Must File and What Forms Apply

Two Separate Reporting Requirements

ACA reporting applies based on two distinct criteria:

1. Applicable Large Employer (ALE) Status

• Employers with 50 or more full-time equivalent (FTE) employees in the prior year
• Must report under Internal Revenue Code Section 6056

2. Self-Funded (or Level-Funded) Health Plans

• Applies regardless of employer size
• Must report under Section 6055

Employers may fall into:

• One category
• Both categories
• Neither

Each scenario determines which forms are required.

Which Forms Should You Use?

Employer TypeRequired FormsALE (Fully Insured)1094-C + 1095-C (Parts I & II)ALE (Self-Funded)1094-C + 1095-C (Parts I, II & III)Non-ALE (Self-Funded)1094-B + 1095-BNon-ALE (Fully Insured)No reporting required

Important nuance:
Even within a controlled group, each legal entity (EIN) must file separately, even if employees are aggregated to determine ALE status.

Filing vs. Distribution: Two Separate Responsibilities

Filing with the IRS

• Electronic filing is now effectively mandatory for most employers
• Most organizations use vendors for:
  • Data preparation
  • Coding
  • Filing submission

Distributing Forms to Employees

Employers must also provide forms to employees using one of three methods:

• Mail (traditional approach)
• Electronic delivery (requires consent)
• Notice of Availability (newer option):
  • Post a public notice with contact details
  • Provide forms only upon request (within 30 days)

Key Deadlines

• March 2: Employee distribution deadline
• March 31: IRS filing deadline
• 30-day extension available for filing (not distribution)

Affordability: What Employers Need to Know

When Does Affordability Matter?

Affordability is only relevant when:

• A full-time employee declines coverage
• Then obtains subsidized coverage through the exchange

If an employee enrolls in your plan, affordability penalties do not apply.

Affordability Threshold

Coverage is considered affordable if the employee’s cost for self-only coverage does not exceed:

• 9.02% (2025)
• 9.96% (2026)
  of household income

Because employers don’t know household income, they rely on safe harbors.

The Three Safe Harbors

1. Federal Poverty Line (FPL)

• Simplest and most conservative
• Guarantees affordability
• Typically requires higher employer contributions

2. Rate of Pay

• Based on hourly rate × 130 hours/month
• Predictable and stable
• Not suitable for commission or tipped employees

3. W-2 Safe Harbor

• Based on Box 1 wages
• Determined at year-end
• Requires accurate wage forecasting

Form 1095-C: Where Most Errors Occur

Focus on Lines 14, 15, and 16

These lines determine:

• Whether coverage was offered
• What it cost
• Why coverage was or wasn’t compliant

Line 14: Offer of Coverage

• Indicates what was offered, not what was elected
• Must be completed for every month

Line 15: Employee Cost

• Reflects lowest-cost self-only coverage
• Not the plan the employee chose

Line 16: Compliance Explanation

This is the most critical line. It explains:

• Why a penalty should not apply

Common codes include:

• 2C: Employee enrolled
• 2F, 2G, 2H: Affordability safe harbors
• 2A / 2B / 2D: Not employed, part-time, or in waiting period

Common mistake:
Leaving Line 16 blank when it should contain a code, which can signal non-compliance.

Common Reporting Scenarios

1. New Hires and Waiting Periods

• Months before eligibility: coded as no offer (1H)
• Waiting periods: coded as limited non-assessment (2D)

2. Employees Who Waive Coverage

• Still report the offer (Line 14)
• Use affordability safe harbor on Line 16

3. Full-Time to Part-Time Transitions

This is a frequent source of confusion.

Under the look-back method:

• Employees remain ACA full-time during the stability period
• Even if their hours drop

If coverage is terminated too early:

• Employers may create penalty exposure

Alternative approach:

• Continue coverage through the stability period
• Or apply the full-time to part-time transition rule (if eligible)

4. Temporary Employees

Under the monthly measurement method:

• If they exceed 130 hours in a month, they are full-time
• Failure to offer coverage can trigger penalties

5. Leaves of Absence (FMLA vs. Non-FMLA)

• FMLA leave: coverage must be maintained
• Non-FMLA leave: depends on employer policy
• Coding must reflect:
  • Coverage continuation
  • COBRA eligibility
  • Measurement method used

6. Terminations

After termination:

• Always coded as:
  • Line 14: 1H (no offer)
  • Line 16: 2A (not employed)

Even if COBRA is elected.

Form 1094-C: A Critical but Overlooked Risk Area

The 95% Offer Requirement

Employers must confirm they offered coverage to at least:

• 95% of full-time employees and dependents

This is reported on Form 1094-C.

Why This Matters

Failing this threshold can trigger the “A Penalty”, which:

• Applies to all full-time employees (minus 30)
• Can result in significant financial exposure

Example:

• 100 employees → potential penalty exceeding $200,000 annually

Common Mistake

• Leaving months blank or marked “No” unintentionally
• Often caused by system defaults or vendor errors

Practical tip:
Always review Form 1094-C before filing, even if using a vendor.

Final Thoughts

ACA reporting is less about completing forms and more about ensuring the underlying data accurately reflects eligibility, coverage, and compliance decisions throughout the year.

Most issues arise not from a lack of effort, but from:

• Misalignment between HR systems and ACA rules
• Inconsistent handling of employee status changes
• Overreliance on vendors without final review

A structured review process, combined with a clear understanding of how different scenarios impact reporting, can significantly reduce compliance risk.

Disclaimer

This content is provided for general informational purposes only and is not intended as insurance advice. Coverage, terms, and availability can vary by carrier and state. For guidance specific to your situation, we recommend speaking with a licensed insurance professional.

‍