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As employers prepare for the next Affordable Care Act (ACA) reporting cycle, understanding the 2026 deadlines and new compliance options is critical. The IRS has finalized the reporting forms and instructions for the 2025 calendar year, along with updates that simplify the process for Applicable Large Employers (ALEs).
Here’s what employers need to know.
Applicable Large Employers (ALEs) must meet the following ACA reporting deadlines for the 2025 calendar year:
Non-ALEs that sponsor self-insured or level-funded plans face the same deadlines when submitting Forms 1094-B and 1095-B.
Under the ACA, employers are required to report information about health coverage offered to employees:
Reporting is completed through IRS Forms 1094-C and 1095-C (for ALEs) or 1094-B and 1095-B (for non-ALE self-insured plans).
Thanks to the Paperwork Burden Reduction Act (PBRA), ALEs now have a new way to fulfill their reporting obligations without furnishing a Form 1095-C to every full-time employee.
Instead, employers can:
The online notice must:
Example:
A “Tax Information” link on a benefits website leading to a page labeled “IMPORTANT HEALTH COVERAGE TAX DOCUMENTS” with instructions for obtaining the form.
This streamlined furnishing method mirrors an existing option for insurance carriers and non-ALEs reporting via Form 1095-B.
Starting with the 2025 reporting year, the IRS now requires electronic filing for virtually all ACA reports.
Previously, employers filing fewer than 250 forms could submit on paper—but that’s no longer an option.
Under the new aggregation rule, employers that file 10 or more total information returns (including Forms W-2, 1099, and ACA forms) must file electronically through the IRS Affordable Care Act Information Returns (AIR) system.
Because the AIR system requires a specific XML schema format, most employers will need to work with an ACA reporting vendor—such as a payroll provider, benefits administration platform, or specialized ACA reporting service.
Failure to comply with ACA reporting requirements can be costly.
For forms due in 2026, the IRS penalties are as follows:
| Violation | Penalty per Form | Maximum Annual Penalty |
|---|---|---|
| Late or Incorrect Filing or Furnishing | $340 | $4,098,500 |
| Intentional Disregard | $680 per form (no max) | — |
Employers may also qualify for “reasonable cause” relief if they can demonstrate responsible efforts to comply and mitigating circumstances beyond their control (see Treas. Reg. §301.6724-1 and IRS Publication 1586).
To prepare for 2026 ACA reporting:
For 2026, ACA reporting brings both greater convenience and stricter electronic filing rules.
Employers should take advantage of the new online furnishing option while ensuring they’re ready to meet the March deadlines and avoid compliance penalties.
The Patient-Centered Outcomes Research Institute (PCORI) fee established by the Affordable Care Act helps fund research to evaluate and compare health outcomes, clinical effectiveness, risks, and benefits of medical treatment and services. The fee, which is adjusted annually, is currently in place through 2029. In Internal Revenue Bulletin 2025-45, the IRS announced that the PCORI fee for plan years ending between October 1, 2025, and September 30, 2026, is $3.84. As has been the case in previous years, this new fee is an increase from the $3.47 payment for policy or plan years that ended between October 1, 2024, and September 30, 2025.
Employers and plan sponsors with self-funded plans are typically responsible for submitting IRS Form 720 and paying the PCORI fee by July 31 of the calendar year immediately following the last day of the plan year, meaning that payments for plan years that end in 2025 will be due in July of 2026. PCORI fees for self-funded plans are assessed on all covered lives, not just on employees. Plan sponsors can use one of three methods to calculate the average number of covered lives for the fee: the actual count method, the snapshot method, and the Form 5500 method.
Many fully insured employers do not need to take any action, as the insurer will submit the payment on their behalf. However, remember that fully insured employers with self-funded HRAs must pay the fee for each employee covered under the account.
One of the hallmark provisions of the Affordable Care Act (ACA) requires Applicable Large Employers (ALEs), which are employers who averaged at least 50 full time or full time equivalent employees in the prior calendar year, to (1) offer minimum essential coverage (MEC) to at least 95% of their full-time employees and the dependent children of those employees and (2) ensure that minimum value (MV) coverage is affordable to their full-time employees at the lowest-cost, employee-only coverage level.
Employees who don’t receive an affordable offer of MV coverage may qualify for subsidized plans on the Exchange—triggering penalties for the employer. Importantly, ALEs are not required to offer affordable coverage to spouses or other dependents, though these individuals may also qualify for subsidies if their available employer-sponsored plan is unaffordable.
Under the ACA, a plan is considered affordable if the cost of the lowest-tier employee-only option falls under a set percentage of the employee’s household income. This baseline is adjusted annually by the IRS for inflation.
For 2026, the IRS has announced a new affordability percentage of 9.96%, up from 9.02% in 2025.
Two bills—the Employer Reporting Improvement Act and the Paperwork Burden Reduction Act—were signed into law on December 23, 2024. These two Acts change the requirements for distributing IRS Forms 1095-B and 1095-C to all employees and covered individuals.
Background
Under the ACA, all employers (or health insurers for fully insured plans) were required to report information about any health coverage offered to their employees via Forms 1095-B or 1095-C. These paper forms are also required to be filed with the IRS, covered by the IRS Form 1094-B or 1094-C.
Based upon data from the ACA’s Exchange/Marketplace and these Form 1095s, the IRS would determine if any Employer Shared Responsibility Payments (not-so-affectionately known as the “penalties”) were due and send the employer a letter (IRS 226J letter) asking for any clarification before the proposed penalties were assessed. Employers only had 30 days from the date of the letter to respond, in many cases noting a coding error on the Form 1095. Since the IRS used the US mail, often the employer had very few days to research the reason for the proposed penalty and to respond accordingly. If the response from the employer was late, the IRS could not only assess the proposed penalty, but additional penalties as well.
Further, the period for assessing and collecting the penalties had no statute of limitations which would otherwise potentially limit the liability for older assessments.
Changes Under the Two Acts
The two Acts will make several important changes that will improve the reporting and enforcement process for plan sponsors.
Forms 1095-B and 1095-C. Plan sponsors and health insurance providers for fully insured plans are no longer required to send these forms to all eligible (full-time) employees and covered individuals. Instead, only if an employee requests a form must one be provided by the later of January 31st of the year following the coverage year or 30 days after the date of the request. However, note that in order to take advantage of this new rule, plan sponsors must provide a notice to employees letting them know they have the right to ask for a 1095 form. There is no model notice yet, but employers can likely make a good-faith effort to draft such a notice.
Electronic Distribution of Requested Form. If the employee has previously given their consent to receive the form electronically (and as long as they haven’t revoked that consent), the 1095 can be provided electronically. While we don’t yet have guidance on this new provision, a good-faith effort—such as including a consent to receive the Form electronically on the request form—may suffice.
Extension of Response Time to Penalty Letters. Plan sponsors will now have 90 days, not 30, to respond to a proposed penalty assessment letter from the IRS before any further action is taken. Given our history assisting employers with responding to these IRS 226J letters, most often the proposed penalty was due to a coding error or missed employee on the 1095, not a failure to offer affordable minimum essential coverage. The change will allow employers reasonable time to research the issue and respond to the IRS in a timely manner.
Statute of Limitations on Penalty Assessments. Instead of an open-ended period to assess penalties, there is now a six year period for collecting any penalties from employers, starting from the later of the due date for the 1095 Forms or the actual filing date, whichever is later.
Important Note. The 1095-B or 1095-C must still be prepared and remitted to the IRS with the corresponding Form 1094. These two Acts only change the distribution requirements to employees and covered individuals in group health plans.
Effective Date. The effective date of the Paperwork Burden Reduction Act is for all calendar years after 2023. The effective date for the Employer Reporting Improvement Act is for returns due after December 31, 2024. Thus, most employers will be relieved of the IRS Form 1095-B and 1095-C requirements for distribution to employees for returns that are due January 31, 2025 for the 2024 year.
Both the IRS and the three agencies tasked with issuing rules under the Affordable Care Act (“ACA”) have released guidance on new items considered preventive and medical care, as well as some further requirements around existing items plans are required to cover. Some of the guidance related to high deductible health plans (“HDHPs”) is effective retroactively presumably because some HDHPs may have already covered those items believing them to be preventive care.
Additional Medical and Preventive Care
In IRS Notice 2024-71, the IRS created a safe harbor stating that male condoms will be considered medical care for tax purposes. Among other results, this means that health plans, health flexible spending arrangements (“Health FSAs”), health reimbursement arrangements (“HRAs”), and health savings accounts (“HSAs”) can pay for or reimburse the cost of male condoms on a tax-free basis. The notice doesn’t specify an effective date, but presumably it is effective immediately.
However, for them to be preventive care for purposes of high deductible health plans and HSA purposes, separate guidance is required. As a reminder, for an individual to contribute to an HSA, they must be covered by a HDHP and not be covered by other non-permitted health insurance. Therefore, even though the IRS has now said that male condoms are medical care, they cannot be covered before the deductible under an HDHP without additional guidance.
Fortunately, the IRS also issued Notice 2024-75. It includes that needed guidance and some other items as well. Specifically, HDHPs can now cover the following items as preventive care before the individual satisfies the deductible:
The retroactive dates were presumably intended to address concerns that plans had already covered some of these items. However, to be clear, HDHPs are not required to cover these items pre-deductible, but this guidance allows them to do so without affecting a participant’s ability to contribute to an HSA.
FAQs part 68
In addition, the Departments of Health and Human Services, Labor, and Treasury issued guidance on some existing items plans are required to cover in their sixty-eighth edition of ACA FAQs.
For plans subject to the Women’s Health and Cancer Rights Act (“WHCRA”), the FAQs clarify that plans are required to cover chest wall reconstruction with an aesthetic flat closure, if elected by the patient in consultation with the attending physician. Under WHCRA, plans are generally required to cover reconstruction of the breast on which a mastectomy was performed, and surgery and reconstruction of the other breast to produce a symmetrical appearance. The guidance now confirms that this requirement includes providing an aesthetic flat closure, where extra tissues in the breast area are removed, and the remaining tissue is tightened and smoothed out to create a flat chest wall. Most plans are subject to WHCRA, including governmental plans, unless they are self-funded and have opted out. Church plans that have elected not to be subject to ERISA are not subject to WHCRA.
The FAQs address some common coding practices for items that are deemed to be medical care. The specifics and nuances of this guidance are more relevant to carriers or third party administrators (“TPAs”). However, in general, if an item is coded as preventive, it should be treated as such unless there’s additional information in the claim that would lead the plan or carrier to believe it should not be treated as preventive. If an item or service is not covered as preventive when it should be, participants and beneficiaries have the right to appeal under the relevant plan claims procedures.
Takeaways
Employers should work with their insurance carriers and TPAs to determine whether and how they plan to cover the additional permitted items for health FSAs, HRAs, and HDHPs. They should also address the coverage of the additional mandatory items from the FAQ guidance. Changes to plan documents, summary plan descriptions, or other communications may be required.
The IRS announced that the affordability percentage for the 2025 calendar year will increase to 9.02% (up from 8.39% which is the rate for the 2024 calendar year).
Under the Affordable Care Act’s employer mandate, an applicable large employer is required to offer at least one health plan that provides affordable, minimum value coverage to its full-time employees (and minimum essential coverage to their dependents) or pay a penalty. For this purpose, “affordable” means the premium for self-only coverage cannot be greater than a specified percentage of the employee’s household income. Based on this recent guidance, that percentage will be 9.02% for the 2025 calendar year.
Employers with non-calendar year plans will still have to use the affordability percentage for 2024 until the start of their 2025 plan year.
Employers need to remember the old “family glitch” was removed starting in 2023. This rule previously prohibited family members of the employee from being eligible for subsidies when the employee was offered affordable, minimum value medical coverage. The removal of the family glitch did not carry new penalty exposure for employers, but it did open the door to subsidy eligibility for family members when the employee’s offer of family coverage is not affordable based on household income. The increase in the affordability percentage for 2025 may lead to some family members who were eligible for subsidies in 2024 no longer being eligible in 2025.
On February 12, 2024, the IRS released Rev. Proc. 2024-14 to provide the adjusted excise tax amounts under the Affordable Care Act’s Employer Shared Responsibility provisions (also known as the ACA Pay or Play Penalty) for 2025.
For background, employers with more than 50 full-time employees (including full-time equivalent employees) are subject to the ACA Pay or Play Penalty under Section 4980H of the Internal Revenue Code (the “Code”). Employers subject to ACA Pay or Play may be liable for a penalty if they do not offer minimum essential coverage to a sufficient number of full-time employees, or if minimum essential coverage is offered to the required number of full-time employees, but that coverage is not affordable.
2025 Adjusted Penalty Amounts
The Internal Revenue Service (IRS) recently released draft instructions for preparing, distributing and filing 2023 Forms 1094-B/C and 1095-B/C. These instructions largely mirror guidance the IRS has published in previous years, except that the electronic filing threshold has been reduced from 250 forms to 10 forms aggregate.
For 2022 filing, employers could mail their Forms 1094 and 1095 to the IRS if their submission included fewer than 250 forms. For ACA filing for 2023 and future years, employers that cumulatively submit at least 10 forms to the IRS, including W-2s, 1099s, ACA forms 1094/1095, and other common form series, the employer must now file all of those forms electronically.
For example– if you are an employer who issues five Forms W-2 for 2023, four 1095-B forms for 2023, and one 1094-B Form for 2023, this is a sum collectively of 10 total forms and this employer must file all of these forms electronically with the IRS when its due in 2024.
This change result from a final regulation the IRS issued earlier this year that officially reduced the electronic filing threshold for many forms.
Employers that have historically submitted their Forms 1094/1095 to the IRS by paper will need to consider overall how many forms they will be filing with the IRS (not just Forms 1094/1095) in 2024 to determine whether they can continue to file via paper. Even if your carrier prepares you with paper copies of your 1094/1095 forms as a courtesy for submission to the IRS, you will still need to evaluate if you need to file those electronically in 2024.
Ultimately the 10 form aggregate threshold will necessitate electronic filing for nearly every employer. Anyone who has traditionally paper filed their ACA forms to consider contracting with a vendor or speak with their payroll company to see if they can confidentially e-File on their behalf in 2024.
The IRS guidance regarding the filing threshold is available online at https://www.govinfo.gov/content/pkg/FR-2023-02-23/pdf/2023-03710.pdf
The IRS has released Revenue Procedure 2023-34 confirming that for plan years beginning on or after January 1, 2024, the health FSA salary reduction contribution limit will increase to $3,200.
The adjustment for 2024 represents a $150 increase to the current $3,050 health FSA salary reduction contribution limit in 2023.
What About the Carryover Limit into 2025?
The indexed carryover limit for plan years starting in calendar year 2024 to a new plan year starting in calendar year 2025 will increase to $640.
Other Notable 2024 Health and Welfare Employee Benefit Amounts
The IRS recently issued Revenue Procedure 2023-29, which significantly decreases the affordability threshold for ACA employer mandate purposes to 8.39% for plan years beginning in 2024. The new 8.39% level marks by far the lowest affordability percentage to date.
The affordability percentages apply for plan years beginning in the listed year. A calendar plan year will therefore have the 8.39% affordability threshold for the plan year beginning January 1, 2024.
The ACA employer mandate rules apply to employers that are “Applicable Large Employers,” or “ALEs.” In general, an employer is an ALE if it (along with any members in its controlled group) employed an average of at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year.
There are two potential ACA employer mandate penalties that can impact ALEs:
a) IRC §4980H(a)—The “A Penalty”
The first is the §4980H(a) penalty—frequently referred to as the “A Penalty” or the “Sledge Hammer Penalty.” This penalty applies where the ALE fails to offer minimum essential coverage to at least 95% of its full-time employees in any given calendar month.
The 2024 A Penalty is $2,970 annualized multiplied by all full-time employees (reduced by the first 30). It is triggered by at least one full-time employee who was not offered minimum essential coverage enrolling in subsidized coverage on the Exchange.
The “A Penalty” liability is focused on whether the employer offered a major medical plan to a sufficient percentage of full-time employees—not whether that offer was affordable (or provided minimum value).
b) IRC §4980H(b)—The “B Penalty”
The second is the §4980H(b) penalty—frequently referred to as the “B Penalty or the “Tack Hammer Penalty.” This penalty applies where the ALE is not subject to the A Penalty (i.e., the ALE offers coverage to at least 95% of full-time employees).
The B Penalty applies for each full-time employee who was:
Only those full-time employees who enroll in subsidized coverage on the Exchange will trigger the B Penalty. Unlike the A Penalty, the B Penalty is not multiplied by all full-time employees.
In other words, an ALE who offers minimum essential coverage to a full-time employee will be subject to the B Penalty if:
The 2024 B Penalty is $4,460 annualized per full-time employee receiving subsidized coverage on the Exchange.