ACA Compliance Guide for Employers: What You Must Do in 2026

The Affordable Care Act has been law for over a decade, but ACA compliance remains a source of confusion — and costly penalties — for many employers. The IRS continues to actively enforce the employer mandate, and penalties have increased significantly.

This guide covers what Applicable Large Employers (ALEs) must do in 2026 to stay compliant.

Who Is an Applicable Large Employer (ALE)?

You are an ALE if you employed an average of 50 or more full-time equivalent (FTE) employees during the prior calendar year. Full-time is defined as 30+ hours per week.

Part-time employees count as fractions: total part-time hours per month ÷ 120 = FTE equivalents.

The Employer Shared Responsibility Provisions

ALEs must offer health coverage that meets two standards:

1. Minimum Essential Coverage (MEC)

You must offer coverage to at least 95% of full-time employees (and their dependents up to age 26). Failure to do so triggers the "4980H(a) penalty" — assessed if even one full-time employee receives a premium tax credit on the Marketplace.

2026 penalty: $2,900 per full-time employee (minus the first 30), annualized.

2. Minimum Value and Affordability

Coverage must:

• Meet minimum value: Pay at least 60% of covered costs (actuarial value)
• Be affordable: Employee's share of the premium for self-only coverage cannot exceed 9.02% of household income (2026 threshold)

Failure to meet these standards triggers the "4980H(b) penalty" — assessed for each full-time employee who receives a premium tax credit.

2026 penalty: $4,350 per affected employee, annualized.

Affordability Safe Harbors

Because employers don't know employees' household incomes, the IRS provides three safe harbors for determining affordability:

W-2 Safe Harbor

Coverage is affordable if the employee's premium doesn't exceed 9.02% of their W-2 Box 1 wages.

Rate of Pay Safe Harbor

Coverage is affordable if the employee's premium doesn't exceed 9.02% of their monthly rate of pay × 130 hours.

Federal Poverty Line Safe Harbor

Coverage is affordable if the employee's premium doesn't exceed 9.02% of the federal poverty line for a single individual.

The FPL safe harbor is the simplest to administer and is widely used.

IRS Reporting Requirements

ALEs must file annual reports with the IRS and provide statements to employees:

Forms 1094-C and 1095-C

• 1095-C: Must be provided to each full-time employee by March 3, 2026 (for 2025 coverage year)
• 1094-C: Transmittal form filed with the IRS by March 31, 2026 (electronic filing)

These forms report whether coverage was offered, the cost of coverage, and whether it met minimum value and affordability standards.

Penalties for Late or Incorrect Filings

• Failure to file: Up to $330 per return
• Intentional disregard: $660 per return with no cap

Common ACA Compliance Mistakes

1. Misclassifying employees as independent contractors — Contractors don't count toward ALE status, but misclassification is heavily scrutinized
2. Not tracking variable-hour employees — Employees who average 30+ hours must be offered coverage
3. Incorrect affordability calculations — Using the wrong safe harbor or incorrect data
4. Missing reporting deadlines — The IRS does not grant extensions easily
5. Not offering coverage to dependents — Coverage must extend to children up to age 26

Getting ACA Compliance Right

ACA compliance is not a one-time project — it requires ongoing monitoring of employee hours, plan design, and reporting. Many employers work with a benefits advisor and a payroll/HR system that automates tracking and reporting.

Our team helps employers understand their ACA obligations, design plans that meet affordability and minimum value standards, and prepare for IRS reporting season.

Contact us to review your ACA compliance posture and identify any gaps before they become penalties.

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Anderson Financial Group provides independent employee benefits consulting. This article is for informational purposes and does not constitute legal or tax advice.