Getting mail from the IRS is rarely good news—but when it’s an ACA penalty notice, it’s more than just a bad day. It’s a blaring siren. These letters aren’t just warnings; they’re urgent alerts that something has gone wrong and needs immediate attention.  

Think of them less as a yellow light and more as a flashing hazard signal: stop, assess, and act—fast. Ignoring or delaying your response could lead to costly consequences. This is your chance to correct course before the penalties become permanent. 

The good news? ACA penalty letters are not final bills. They’re opportunities to correct errors, provide documentation, and get your compliance back on track. 

ACA Compliance 101: The Rules of the Game 

Under the Affordable Care Act (ACA), Applicable Large Employers (ALEs)—those with 50 or more full-time employees (or full-time equivalents)—must follow the Employer Shared Responsibility rules, also known as the “pay or play” provisions. 

• Full-time employee (FTE): Works at least 30 hours per week or 130 hours per month. 
• Full-time equivalent (FTE count): Total hours of part-time employees divided by 120, added to the number of full-time employees. 
• Why it matters: ALE status determines whether you’re required to offer coverage and report to the IRS. 

Accurate reporting is crucial. A small mistake—like understating your FTE count—can turn into a big penalty. 

The Two Big Penalties Employers Face 

1. Penalty A (The “No Offer” Penalty) 

Triggered when: You fail to offer Minimum Essential Coverage (MEC) to at least 95% of your full-time workforce. 

Cost:  

2025: $241.67 per month per full-time employee, or $2,900 annually.

2026: $278.33 per month per full-time employee, or $3,340 annually. 

Think of it as: Forgetting to invite part of your team to the company party—only this oversight costs thousands. 

2. Penalty B (The “Unaffordable Offer” Penalty) 

Triggered when: FTE receives a premium tax credit through the Marketplace because your coverage is unaffordable or doesn’t meet Minimum Value (60% actuarial value, including hospitalization). 

Cost: $362.50 per month per affected employee, or $4,350 annually. 

Affordability Thresholds: 

2025: 9.02% of income; $113.20 FPL amount 

2026: 9.96% of income; $129.89 FPL amount 

If an employee gets a Premium Tax Credit (PTC) through the Marketplace, this penalty can apply. 

Why Did You Receive an ACA Penalty Letter? 

Here are some of the most common triggers: 

Failed to offer MEC to at least 95% of full-time employees. 

An employee received a PTC, indicating your offer of coverage was not affordable or not offered. 

Reporting errors—incorrect codes, incorrect FTE counts, missing data. 

Failure to file Forms 1094-C/1095-C on time. 

Many penalties stem not from actual noncompliance, but from reporting errors. 

Understanding the IRS Letters 

Not all IRS letters are created equal. Some are warnings, some propose penalties, and others confirm outcomes. 

The Most Common (and Costly) Mistakes 

Overstating full-time counts: Inflates penalty calculations. 

Using wrong affordability percentages: Leads to incorrect safe harbor application. 

Missing deadlines: The clock starts the moment you get the letter. 

FTE miscalculations: Errors here affect ALE status and coverage requirements. 

Example: 
A company with 30 full-time employees and 30 part-time employees (each working 60 hours/month) has 15 FTEs from the part-time group (1,800 ÷ 120). Add the full-time count (30 + 15 = 45 FTEs). With fewer than 50 FTEs, they’re not an ALE—yet reporting errors could make it appear otherwise. 

How to Respond (Without Losing Sleep) 

• Don’t ignore it. The response window is now 90 days (thanks to the Employer Reporting Improvement Act). 
• Review the details. Check the Form 14765 employee list, coverage codes, and reported data. 
• Decide your approach: 
• Agree with the IRS? Pay the penalty or await the next steps. 
• Disagree? Provide proof and submit corrections. 
• Use Form 14764 to formally accept or contest the proposed penalty. 
• Get help. Engage your broker, legal counsel, or an ACA compliance expert to strengthen your case. 

Avoiding the Next Letter: Compliance Best Practices 

• Leverage technology to track affordability and eligibility in real time, like Selerix ACA. 
• Stay current with IRS affordability thresholds and penalty amounts. Check out our ACA Codes Cheat Sheet to get the latest information. 
• Conduct mid-year audits to catch reporting issues before they escalate. Download our Mid-Year ACA Checklist to stay ahead. 

How Selerix Keeps You Out of the Penalty Zone 

Selerix helps employers stay ahead of ACA compliance with tools and expertise that make reporting effortless and accurate: 

• ERISA attorney-reviewed code generation for accurate filings. 
• Real-time action alerts to flag potential issues early. 
• Dual measurement periods and automated affordability checks. 
• Federal & state 1094/1095 e-filing with print-and-mail services. 
• Proven track record: 1.7 mill+ companies filed and a 97% client retention rate—with clients who have never paid an ACA penalty while using our software. 

Don’t wait for a penalty letter to wake you up to ACA compliance risks. See how Selerix can protect your business. 

Conclusion: From Panic to Prevention 

ACA penalty letters can be unsettling, but they don’t have to be catastrophic. By understanding what they mean, responding quickly, and putting the right compliance strategies in place, you can turn a potential penalty into a learning opportunity. 

Stay ahead of the IRS. With the right tools—and the right partner—you can keep compliance simple and penalty-free. 

Want a Deeper Dive on Handling ACA Penalty Letters?

Getting an IRS penalty notice can feel overwhelming—but you don’t have to navigate it alone. Our upcoming webinar, Back to the Basics: Navigating ACA Penalty Letters, takes the insights from this blog one step further.

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