ACA compliance is no longer forgiving.

Federal updates this year tightened timelines, removed long-standing relief provisions, and increased penalty exposure—while simultaneously changing how employers distribute and document ACA forms. On paper, some of these changes looked like “simplification.” In practice, they raised the bar for accuracy and process discipline.

Here’s what employers need to understand about ACA and related federal updates from 2025—and what must be done now to avoid penalties.

• Part 1: The 2025 HR Compliance Debrief: The Big Shifts Employers Can’t Ignore
• Part 2: ACA + 2025 Federal Updates: What Employers Must Do Now to Avoid Penalties
• Part 3: State Law Surge in 2025: Pay Transparency, Leave, Privacy, and the Patchwork Problem

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ACA Penalties Increased—and So Did the Stakes

One of the most important ACA developments heading into 2026 is the increase in Employer Shared Responsibility penalties.

For applicable large employers (ALEs), this means:

• Higher penalties for failure to offer coverage
• Higher penalties for unaffordable coverage
• Less margin for error if reporting is inaccurate or incomplete

At the same time, the ACA affordability percentage continued to shift, impacting whether employer-sponsored coverage meets federal standards. Employers that did not re-evaluate plan affordability in 2025 may already be exposed.

Key takeaway: ACA penalties are increasing, and affordability must be actively reviewed—not assumed.

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“Good Faith” Relief Is Gone—Accuracy Is Mandatory

A major compliance shift in 2025 came from the Paperwork Burden Reduction Act and the Employer Reporting Improvement Act.

While these laws removed the requirement to automatically distribute Form 1095s in certain situations, they also:

• Eliminated “good faith” and transition relief
• Made accuracy and documentation non-negotiable
• Extended—but did not eliminate—employer response obligations

Employers now must:

• Post a clear and conspicuous notice of availability for Forms 1095
• Ensure the notice is accessible (website or intranet)
• Respond to employee requests within required timeframes
• Maintain proof that the notice was posted correctly

Flexibility in distribution does not reduce liability for errors.

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Reporting Still Drives Enforcement

Even with distribution changes, ACA reporting remains the primary enforcement tool.

Common reporting-related penalty triggers include:

• Incorrect employee classifications
• Inaccurate offer codes on Form 1095-C
• Affordability miscalculations
• Missing or incorrect dependent coverage information
• Mismatched payroll, benefits, and HR data

The IRS also expanded the response window for Letter 226J notices, but that extension should be viewed as time to prepare—not time to relax.

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Related Federal Changes Employers Can’t Ignore

ACA compliance in 2025 did not exist in a vacuum. Employers also had to navigate related federal developments, including:

Wage & Hour and Tax Changes

Federal legislation introduced new tax treatment for certain overtime premiums and tips, with future reporting implications tied to payroll systems and W-2s beginning in 2026. While not directly ACA-related, these changes increased the need for clean job codes, accurate earnings tracking, and payroll coordination.

Agency Enforcement Shifts

Federal agencies signaled shifting priorities, but enforcement did not disappear. Instead, employers faced:

• Increased scrutiny in documentation-heavy areas
• Greater reliance on audits and data matching
• A renewed focus on employer process controls

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The Most Common “Silent” ACA Mistakes in 2025

These are the issues most likely to create penalties—often without employers realizing it:

• Assuming affordability hasn’t changed year over year
• Treating new reporting rules as optional rather than procedural
• Misalignment between payroll, benefits, and HR systems
• Inconsistent handling of variable-hour or seasonal employees
• Poor documentation of notices, elections, and eligibility

These mistakes rarely surface internally—but they show up quickly in IRS notices.

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Year-End Action List: What Employers Should Do Now

Before closing out 2025, employers should:

• Review ACA affordability using current thresholds
• Validate 1095-C coding accuracy
• Confirm proper notice of availability posting
• Reconcile payroll, benefits, and HR data
• Document internal ACA processes and ownership
• Prepare for higher penalty exposure in 2026

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Frequently Asked Questions: ACA & 2025 Federal Updates

What are the biggest ACA compliance changes employers need to know from 2025? +

The most significant ACA changes in 2025 include higher penalty exposure heading into 2026, shifting affordability thresholds that impact plan design, and updated reporting rules that increase employer responsibility for accuracy and documentation.

Did ACA reporting rules change for Forms 1095 in 2025? +

Yes. While some employers are no longer required to automatically distribute Forms 1095, employers must still post a clear notice of availability, respond to employee requests within required timeframes, and maintain accurate ACA reporting.

What is the ACA affordability percentage and why does it matter? +

The ACA affordability percentage determines whether employer-sponsored coverage meets federal affordability standards. If coverage is considered unaffordable, employers may face penalties even when coverage is offered.

What are common ACA “silent mistakes” that can trigger penalties? +

Common silent mistakes include assuming affordability hasn’t changed year over year, inaccurate Form 1095-C coding, misalignment between payroll and benefits systems, inconsistent handling of variable-hour employees, and weak documentation.

What should employers do before year-end to reduce ACA penalty risk? +

Employers should review affordability thresholds, validate 1095-C accuracy, confirm required notices are properly posted, reconcile HR and payroll data, and document ACA processes before year-end.

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Final Thought: ACA Compliance Is Now a Process, Not a Filing

The biggest shift in 2025 wasn’t just regulatory—it was structural.

ACA compliance is no longer about meeting deadlines once a year. It’s about ongoing coordination, documentation, and accuracy across systems. Employers that treat it as a living process are far better positioned to avoid penalties than those relying on outdated assumptions.

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Want a practical way to close out the year?

Download MP’s 2025 HR Compliance Year-End Checklist to identify risk areas and prioritize next steps—or schedule a brief compliance review with our experts to ensure nothing gets missed.

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