Most employers don't think they’re out of compliance with the Affordable Care Act. Many are confident they’re doing all of the right things.
They offer health insurance. They run payroll on time. They file their forms every year.
Then an IRS notice shows up…
What catches employers off guard is that ACA penalties usually aren’t caused by one big mistake. They come from small decisions made throughout the year that don’t feel risky at the time, but quietly add up.
We’re here to help you navigate ACA compliance! Here are the issues we see most often, and why they end up costing businesses real money.
This is one of the most common starting points. A business assumes they’re under the 50-employee threshold because they don’t have 50 full-time staff on the schedule.
What’s often missed is how part-time hours factor into the calculation. Once those hours are converted into full-time equivalents, many employers cross the line without realizing it.
By the time they find out, they haven’t offered coverage, haven’t filed the required forms, and are suddenly exposed to multiple penalties at once.
👉 Here’s some info from the IRS to help you determine if you are an ALE.
Another issue we see often is relying on labels instead of hours. An employee is called part-time, seasonal, or temporary, so no one is watching their average hours closely.
Schedules change. Coverage eligibility doesn’t always get revisited. Then an employee qualifies as full-time under ACA rules and no offer of coverage was ever made.
If that employee receives subsidized coverage through the Marketplace, the penalties can apply month by month, not just once.
Many employers file Forms 1095-C every year and assume that filing is the same as compliance. This is where you might be mistaken.
Incorrect codes, wrong affordability amounts, missing months of coverage, or using per-paycheck numbers instead of monthly can all trigger penalties.
Affordability issues usually come from pulling the wrong number, like using what an employee paid for family coverage or a bi-weekly deduction instead of the required employee-only monthly cost. When that happens, coverage can look unaffordable on paper even if it wasn’t.
The bigger problem is that once the setup is wrong, the same error often shows up on every employee’s form, which is how small mistakes turn into bigger penalties.
Another common mistake is filing with the IRS alone. All of your employees need to also receive their 1095-C forms.
This typically gets missed during leadership changes, mergers, or when reporting is handled by multiple vendors. Unfortunately, the IRS doesn’t treat this as a minor oversight. Penalties can apply separately for failing to file and failing to furnish.
Self-insured and level-funded plans add another layer of complexity. Employers sometimes believe these plans are fully insured and don’t realize additional reporting is required.
When enrollment data is missing or incorrectly reported, it can raise red flags across the entire filing. This is especially risky for businesses that change plan types mid-year.
The most stress usually arises when you don’t realize there’s an issue until an IRS letter shows up. By then, everything feels rushed, deadlines are tighter, and there’s far less room to fix things calmly.
In some cases penalties can be reduced, but it’s always easier when problems are caught early and the right documentation already exists.
ACA penalties can add up quickly. Reporting errors can result in penalties of over $300 per incorrect form, and fines are per employee. When the same issue appears across multiple forms, costs can climb fast, turning what felt like a small oversight into a very expensive problem.
MegaPay’s Fractional HR service is designed to help prevent these situations before they turn into penalties. Instead of reacting at filing time, employers get ongoing support to review reporting accuracy and address risks as they arise.
ACA reporting & filing deadline is coming up March 31st (or February 28th if filing by paper)! Employee copies must be given to employees by March 2nd. It’s time to file and get your process right to make sure small issues don’t turn into surprises that will cost you!
MegaPay is here to help. Give us a shout!