The annual reporting deadlines for required coverage under the Affordable Care Act (ACA) are toward the end of the first quarter. Due to the complexity of the ACA’s employer mandate, it’s a good idea to start preparing now.
Does the employer mandate apply to you?
The first step is determining whether you are subject to employer shared responsibility provisions, which are better known as the employer mandate.
Employer mandate penalties are enforced against applicable large employers (ALEs) that:
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Fail to offer health coverage to 95% or more of full-time employees and dependents (known as the “A” penalty)
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Offer health coverage that is unaffordable or does not meet minimum value standards set by the ACA, and have one or more employees who receive a premium tax credit from a state or federal health exchange (known as the “B” penalty)
An ALE is any employer that had 50 or more full-time employees (including full-time equivalent employees) during the preceding calendar year.
Health coverage is deemed unaffordable if it exceeds a certain percentage of an employee’s household income. This percentage started at 9.5% but is adjusted annually. The percentage had dropped to 8.39% in 2024. That was the lowest percentage since the inception of the ACA. It increased to 9.02% for plan years starting in 2025, and it is jumping to 9.96% in 2026.
You meet the minimum value threshold if your plan covers 60% or more of the total allowed benefit costs expected under the plan.
Employer mandate penalties
If you fail to meet ACA coverage requirements or accurately report your coverage, the IRS will issue an A or B penalty. Penalty amounts are adjusted annually.
The 2026 employer A penalty is $3,340 per employee, with the exception of 30 employees. For example, if you had 200 full-time employees and failed to offer ACA-required health coverage, you would pay a per-person penalty for 170 employees (200 – 30 = 170). Multiplying 170 by $3,340, your penalty would be $567,800.
The 2026 employer B penalty is $5,010 for every employee who seeks a premium tax credit to subsidize their health care on a state or federal exchange. For example, if you failed to offer affordable coverage to your 200 employees, and 45 of them sought the premium tax credit, you would pay the per-person penalty on those 45 employees. Multiplying 45 by $5,010, your penalty would be $225,450.
The IRS does not assess A and B penalties for the same tax year. Instead, it assesses the highest penalty. In the above examples, the A penalty is greater and would therefore be the required payment for ACA noncompliance.
Tips to stay in compliance
Legal experts are warning that the IRS is becoming less forgiving of clerical mistakes and reporting errors
Staying on top of the basics can save you from administrative and financial burdens. Use these tips to avoid simple mistakes and stay compliant.
Mark your calendar now. Missing a deadline is a sure way to draw unwanted attention. As an ALE, you must provide employees with individual statements of Form 1095-C by March 2, 2026. In addition, you must file your Forms 1094-C and 1095-C with the IRS. The IRS deadlines differ by delivery
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For paper filings, the deadline is March 2, 2026.
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For electronic filings, the deadline is March 31, 2026. Note: Recent regulations ensure virtually every employer will need to file electronically. In previous years, you could file by paper if you had less than 250 forms. Now, you must file electronically if you have 10 or more aggregate forms. This aggregate number includes W-2 and 1099 forms in addition to Forms 1094-C and 1095-C.
Check the box for minimum essential coverage. If you meet the minimum essential coverage requirements, check “Yes” on Line 23, column (a) of Form 1094-C. This indicates you offered minimum essential coverage for all 12 months. Checking “No” or leaving this line blank could lead to an employer shared responsibility penalty of $3,340 per employee.
Maintain your records. Retain copies of your Forms 1094-C and 1095-C for current and past years. The IRS has not set a statute of limitations on employer mandate penalties and could look back at any applicable year.
Update your contacts and processes. You’ll receive Letter 226-J if the IRS believes you may be liable for an employer shared responsibility payment due to information on Forms 1094-C and 1095-C. Highlight the importance of Letter 226-J to any employee responsible for company mail. Make sure the contact information on Forms 1094-C from previous years is up to date. If the contact person has left your company, update your processes to have mail forwarded to the employee currently responsible for ACA compliance. You have 30 days from the date of the letter to respond to the IRS, and you don’t want to lose time because the mail didn’t get to the right person in your organization.
Reach out for assistance
If you find ACA mandates cumbersome and complicated, you’re not alone.
For in-depth information on ACA coverage and reporting requirements, talk with your Davis Hall or legal counsel. Davis can guide you through the reporting process and keep your plan compliant.
