Employers subject to Affordable Care Act (ACA) reporting mandates are approaching the reporting period for 2024. While there is speculation that the ACA could be repealed or modified by the incoming administration, the law and updated reporting requirements and penalties are still in effect. There are now harsher penalties imposed by the IRS for noncompliance, making it crucial for employers to file the appropriate information returns accurately and on time.
Here's what employers need to know about ACA reporting in 2025 and how to avoid ACA penalties.
What’s New in ACA Reporting for 2025?
Applicable large employers (ALEs) with at least 50 full-time employees are required to report whether minimum essential coverage (MEC) was affordable, available, and provided minimum value to employees. ALES now must furnish Form 1095-C to all employees by March 3, 2025. ALEs also need to file copies of Form 1095-C plus Form 1094-C to the IRS by March 31, 2025.
If your organization doesn't meet the ALE definition but sponsors a self-insured plan, the months of coverage for each employee must be reported on Forms 1094-B and 1095-B.
The ACA penalty amounts increased for 2025, reporting 2024 data. Failure to file 1095 series carries a $330 penalty per return or statement, corrections filed within 30 days before August 1, 2025 carry a $130 penalty per return or statement, and the intentional disregard penalty is now the greater of $660 or 10% of the total required to be reported.
Common ACA Reporting Challenges and How to Overcome Them
ACA compliance can be challenging because laws, employment, and insurance are never static. ACA reporting in 2025 gives you until March to report 2024 information correctly, and these are among the most common pitfalls in ACA reporting:
- Correctly identifying full-time employees. Under most laws and social norms, a permanent employee is considered full-time if they work at least 40 hours a week. For ACA purposes, an employee is considered full-time if they average 30 hours per week or 130 hours per month. Temporary employees may also be included in this count for the months they worked 30 hours per week or 130 hours per month. Because employers frequently rely on the permanent 40-hour work week model to identify full-time employees, this causes miscounts. Robust wage and hour tracking tools can correctly identify the number of full-time employees and how long they've worked for the organization, and demarcate ACA purposes from other wage and hour regulations.
- Slipping in and out of ALE status. Small and medium employers may find their headcounts fluctuating during turbulent economic times, getting through large projects or growth stages, or layoffs. Because an ALE is defined as having 50 or more full-time employees, it's possible to start the year with 50 or more full-time employees then end the year with fewer, or vice versa. This can cause employers to file the incorrect information return. If your organization slips in and out of ALE status and offers health insurance, you need to use the headcount based on IRS criteria even if some of those employees are no longer working for you as of 2025. This determines whether you should file 1094-C and 1095-C (ALE) or 1094-B and 1095-B (non-ALE).
- Accurate and complete data management. Payroll data and insurance documents may not have the full picture of whether the organization is ACA-compliant. The best strategy to mitigate this risk is to form data management procedures for ACA compliance purposes and assess whether the right tools are in place. Payroll Freedom can assist with our ACA compliance solutions.
- Submitting health insurance and headcount information to the IRS on time. The 2025 ACA reporting deadline is March 3, 2025 to furnish ACA tax forms to employees and March 31, 2025 to file the 1095 series with the IRS. Unlike personal and corporate tax returns, there are no extensions you can file if you need more time. Organizing payroll and ACA compliance data in advance so that it's ready early in the year is the most effective way to get these information returns in on time.
- Not electronically filing. The IRS mandates that entities with 10 or more returns filed per year electronically file their documents. This includes forms in the 1095 and 1094 series, W-2, 1099, and other information returns. While most ALEs e-file their forms, small organizations that file paper returns need to be mindful of whether they're past this threshold. Working with a tax professional who can e-file your ACA information returns ensures you are compliant and also reduces the risk of longer processing times and input errors associated with paper filings.
Step-by-Step Guide to ACA Reporting
- First, do an accurate headcount and work hour analysis to ensure that you are reporting the correct number of full-time employees for ACA purposes. This number will determine whether you are an ALE or not, and this affects your reporting requirements and any potential penalties for missing or incorrect forms, statements, and information returns.
- Collect all relevant documents on the full-time employees and the insurance offered. The number of months each employee was part of the plan must be reported, even if they are no longer with the company as of 2025.
- Complete all required forms in the 1095 and 1094 series to ensure they are sent to employees and the IRS on time.
- Check the forms for errors prior to submission to avoid bottlenecks and penalties for filing corrected versions at a later date.
- Furnish copies to all employees named in the 1095 and 1094 series and file all required information returns with the IRS.
Avoiding Penalties: Best Practices for ACA Compliance
How do you avoid ACA penalties? Penalties are usually assessed on lateness or complete omission. They add up fast, but there are some simple ways to mitigate them:
- Remember that "full-time employee" has a different meaning for ACA purposes and make sure you have an accurate count of how many full-time employees there are.
- Based on the number of full-time employees, you may be a non-ALE and thus have fewer reporting requirements than ALEs. If you offer insurance to your employees, you have a different information return to file than ALEs.
- Thorough and accurate wage and hour reporting is the building block of ACA compliance. Payroll Freedom's ACA compliance tracking and timekeeping tools help small and medium sized organizations accurately identify full-time employees for ACA purposes.
- Having all of the relevant payroll and health insurance data organized with a robust data management solution ensures you are prepared to file your ACA information returns on time with the both IRS and your employees so they can file their personal taxes right away.
- Even if you are unsure whether all of the information is correct, it's best to file an information return by the deadline. You can file a correction for a smaller penalty than willfully not filing the return at all.
ACA compliance can be simplified with the right technology. Payroll Freedom's time and attendance solutions provide user-friendly online timekeeping tools that simplify determination of full-time employees for ACA purposes. By integrating your HR system with our ACA reporting tools, you have a clear, top-down picture of both payroll and compliance obligations. This enables you to be proactive in compliance management rather than receiving unpleasant surprises from opaque and poor data management.
The ACA is a complex piece of legislation that frequently updates and now penalizes employers more harshly for not filing returns in a timely manner, or at all. It's crucial to stay on top of your ACA reporting obligations to avoid costly penalties and disruptions, and take care of these filings early in the year.
Stay ahead of ACA compliance with Payroll Freedom! Contact us today to ensure your ACA reporting is accurate and timely.