ACA Reporting for Clients Nearing the 50-Employee Threshold

It's an exciting time whenever your business is growing and you're adding new employees. However, you need to start preparing before you reach 50 full-time equivalent employees (FTEs). The 50-employee threshold isn’t just a number—it’s a compliance trigger for the Affordable Care Act (ACA).

Applicable large employers (ALEs) with 50 or more FTEs are required to provide at least minimal essential coverage for their full-timers. Proof of coverage needs to be sent to the IRS. Failure to comply can cost you thousands of dollars per day in excise taxes from the IRS until at least 95 percent of your FTEs have minimal coverage. You could also receive a penalty letter and an unwanted audit by the IRS.

If you're getting close to mandatory ACA reporting on the 50-employee threshold, keep reading.

Understanding Applicable Large Employer (ALE) Status

The IRS classifies a business as an Applicable Large Employer once it reaches the threshold of 50 full-time equivalent employees.

A common misconception that people may have is that if a business has a headcount of 50 workers, it qualifies as an ALE and is subject to ACA reporting. That's not necessarily the case. Some of the 50 might not be full-time equivalents.

Your part-timers count toward the 50 FTE threshold when added together. Seasonal employees and any workers who have military health coverage, such as a VA plan or TRICARE, can also be excluded from the headcount.

Calculating your number of FTEs under IRS guidance can be a little bit complicated. Suppose you have 40 employees who work more than 30 hours a week (FTEs) and several part-timers. You would then use what's known as the look-back period to calculate your actual number of FTEs.

To do this, choose a measurement period from recent history. This is typically the last 3 to 12 months. Track all employee hours for this period, and add up the total number of hours worked by the part-timers. 30 hours per week is considered full-time, so divide the total number of hours worked by the part-timers by 120.

Now let's say your part-timers worked 1,200 hours over the measurement period.

1,200 hours divided by 120 equals 10 FTEs. With the original 40 full-timers, plus the additional 10 full-time equivalents calculated under the look-back period, your business would qualify as an Applicable Large Employer.

ACA Reporting Requirements Once You Qualify

Once you reach 50 ACA full-time equivalent employees, you have new ACA reporting requirements.

Form 1094-C is a summary provided to the IRS that explains the offer of coverage and affordability. ALE must document whether they offered minimum essential coverage to at least 95 percent of their full-time employees. For coverage to qualify as affordable, the employee's share for self-only coverage can't exceed 9.02 percent of their household income (for 2025). The employer is also required to document which employees accept or decline coverage.

Form 1095-C is given to employees and outlines the coverage offered to them. These forms must be provided to employees by early March, and all ACA reports must be filed electronically with the IRS by late March. If an ALE files the reports via paper filing, the deadline is at the end of February.

Preparing Before You Reach the Threshold

If you know your business is growing and has more than 40 full-time equivalents, it's time to get proactive. Start tracking all employee hours and calculating the total number of FTEs using the look-back method.

You should also audit your benefits offerings to ensure that they are compliant with ACA guidelines. Plans must offer minimum essential coverage and must qualify as affordable under ACA rules. Plus, be sure the coverage offerings are being made to at least 95 percent of FTEs.

Finally, choose a payroll provider such as Payroll Freedom. We can help simplify your reporting on Forms 1094-C and 1094-D to avoid ACA penalties and fines. We'll manage your payroll and ACA data efficiently and keep you in compliance.

How Payroll Freedom Can Help

Payroll Freedom's platform offers payroll processing, time and attendance tracking, HR automation, and benefits management. Our tools can help ALEs track employee hours and make FTE calculations. We can also keep you on top of health coverage offerings and IRS reporting requirements. We even offer support for onboarding ACA-compliant plans.

If you know you're getting close to that applicable large employer ACA trigger, reach out to us a Payroll Freedom. We can perform a compliance assessment and help your business make the transition.