ACA penalties aren’t just a “big employer problem.” In 2025, Applicable Large Employers (ALEs) face greater scrutiny, stricter expectations for data accuracy, and real financial exposure when reporting is incorrect. The IRS doesn’t need a perfect storm to assess penalties—just a missed offer of coverage, an affordability misstep, or incorrect 1095-C data.

This post covers the most common ACA compliance mistakes we see employers make—and what to do instead—so HR and payroll teams can stay audit-ready and reduce risk.

Read the 3 Part Series

• Part 1: ACA Reporting Requirements Made Simple: What Employers Need to Know for 2025
• Part 2: Avoiding ACA Penalties in 2025: The Most Common (and Costly) Employer Mistakes
• Part 3: Turning ACA Data into Strategy: How HR Teams Can Use Compliance Insights to Drive Smarter Benefits Decisions

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ACA Penalties in 2025: What’s Actually at Stake?

Two major ACA penalties drive most employer exposure:

• 4980H(a) “non-offer” penalty: Applies when an ALE fails to offer minimum essential coverage (MEC) to enough full-time employees and at least one full-time employee gets subsidized Marketplace coverage. The indexed annual amount for 2025 is $2,900 per full-time employee (minus the first 30), assessed monthly.
• 4980H(b) “affordability/minimum value” penalty: Applies when coverage is offered, but it’s not affordable and/or doesn’t provide minimum value, and at least one full-time employee receives a subsidy. The indexed annual amount for 2025 is $4,350 per subsidized full-time employee, assessed monthly. AssuredPartners

And then there’s the third bucket that trips up a lot of teams:

• Information return penalties for late/incorrect filing or furnishing employee statements (think 1095-Cs). The IRS can assess penalties when required information returns and payee statements aren’t filed/provided correctly and on time. IRS

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2025 Affordability: The Rule That Drives the Most Penalties

Affordability is where many employers get burned because it changes, and because household income is usually unknown.

For plan years beginning in 2025, the IRS affordability threshold is 9.02%. IRS

That’s why safe harbors matter. If you don’t have a documented affordability strategy (and consistent application), you’re relying on luck.

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The Most Common ACA Compliance Mistakes (and How to Fix Them)

Mistake #1: Misclassifying full-time employees

ACA full-time status is not “company full-time.” It’s typically based on whether an employee averages 30 hours/week (130/month). Errors happen when:

• Variable-hour employees aren’t tracked accurately
• Hours from multiple locations/entities aren’t consolidated
• Measurement periods aren’t applied consistently

Fix: Lock in a monthly tracking process and use a documented measurement method for variable-hour employees. Don’t wait until January to discover someone should’ve been treated as full-time all year.

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Mistake #2: Failing the “95% offer” requirement

A surprising number of penalty situations start with one simple issue: not offering MEC to enough full-time employees.

Even if you offer excellent coverage to most employees, missing the threshold can trigger the larger 4980H(a) exposure when a single employee receives a subsidy. AssuredPartners

Fix: Run a monthly “offer audit” that checks:

• who was full-time that month
• who received an offer
• whether dependents were included where required
• effective dates vs. eligibility dates

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Mistake #3: Getting affordability wrong (or failing to document it)

In 2025, affordability is capped at 9.02%. IRS
Where employers slip:

• using the wrong safe harbor (or mixing methods by employees without rules)
• relying on plan costs that don’t reflect the correct lowest-cost self-only option
• failing to adjust when compensation changes mid-year

Fix: Choose your affordability safe harbor strategy (W-2, rate of pay, or federal poverty level), apply it consistently, and keep documentation.

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Mistake #4: Treating 1095-C coding like an end-of-year task

Small coding issues create big problems:

• Wrong offer codes by month
• missing codes for one month
• incorrect employee data (hire/term dates, ZIPs for certain plan types, etc.)
• plan start month errors

These issues are exactly what lead to IRS follow-up and assessment.

Fix: Stop thinking “forms” and start thinking “data integrity.” Do a pre-filing review built around monthly accuracy, not last-minute cleanup.

For official guidance, always reference the IRS Instructions for Forms 1094-C and 1095-C.

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Mistake #5: Missing filing/furnishing requirements—or sending inaccurate statements

Late or inaccurate reporting can trigger information return penalties. The IRS explicitly states penalties may apply if you don’t file information returns or provide statements on time. IRS

Fix: Build a timeline that starts in Q4, not February. Your year-end process should include:

• eligibility validation
• affordability review
• offer audit
• coding/statement review
• approval workflow and submission calendar

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Mistake #6: Panicking (or procrastinating) after receiving Letter 226-J

Letter 226-J is the initial IRS letter notifying an ALE it may owe an Employer Shared Responsibility Payment (ESRP). IRS
Recent law changes require the IRS to give employers at least 90 days to respond to the first proposed assessment letter. Congress.gov

Fix: Respond strategically:

• Pull your ACA measurement/offer records and payroll/benefits history
• Validate whether the employee was truly full-time for the assessment months
• Verify affordability and safe harbor documentation
• Respond by the deadline with supporting data

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How to Stay Audit-Ready in 2025 (Simple, Repeatable Process)

If you want to cut penalty risk without overcomplicating things, use this approach:

1. Monthly ACA dashboard: full-time status, offers made, eligibility exceptions
2. Quarterly affordability check: confirm lowest-cost self-only plan and safe harbor alignment
3. Year-end pre-audit (before forms): validate dates, offers, dependent logic, affordability, and data completeness
4. Document everything: your safe harbor method, measurement approach, and correction process
5. Have a response plan: know who owns IRS notices and what records you’ll pull immediately

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FAQ: ACA Penalties & Compliance in 2025

Quick answers to the questions HR and payroll teams ask most when they’re trying to reduce risk and stay compliant.

MP: Wired for HR

What is the ACA affordability threshold for 2025?

For 2025, coverage is generally “affordable” if the employee’s share of the lowest-cost self-only plan that provides minimum value does not exceed 9.02% of household income. Employers typically rely on IRS safe harbors (W-2, Rate of Pay, or Federal Poverty Line) to demonstrate affordability.

Who has to comply with ACA employer reporting?

Employers that qualify as an Applicable Large Employer (ALE) must comply. In most cases, that means averaging 50 or more full-time employees (including full-time equivalents) in the prior calendar year.

What triggers ACA penalties for employers?

Penalties most often occur when an ALE (1) fails to offer minimum essential coverage to enough full-time employees, or (2) offers coverage that is not affordable and/or doesn’t provide minimum value, and at least one full-time employee receives a Marketplace subsidy.

What are the most common ACA reporting mistakes?

The biggest issues include misclassifying full-time status, missing coverage offers for eligible employees, incorrect affordability calculations (or undocumented safe harbors), and 1095-C coding errors by month—especially around hire/termination months and measurement periods.

What should we do if we receive an IRS Letter 226-J?

Don’t ignore it. Pull coverage offer records, eligibility history, payroll data, and affordability documentation for the months in question. Then respond before the deadline with supporting data. Many assessments can be reduced or corrected when the employer provides accurate documentation.

Want the quick, step-by-step version? Download the 2025 ACA Compliance Checklist .

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The Bottom Line

ACA penalties in 2025 are largely avoidable—but only if your team treats ACA as a year-round compliance system, not a once-a-year filing scramble.

If you want the most practical next step: use a checklist, run a quick audit, and fix gaps before you file.

Want us to send the 2025 ACA Compliance Checklist? It’s built to help HR and payroll teams spot risks early and walk into filing season confident—not guessing.

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