December is not just about holiday planning: it's also your last chance to avoid ACA compliance disaster.

A single misfiled 1095-C can trigger IRS penalties exceeding $2,970 per employee. Multiply that across your workforce, and you're looking at 5- or 6-figure liabilities that could have been prevented with proper December preparation.

The danger intensifies because audit scrutiny increases at year-end, precisely when most teams are understaffed and distracted. By the time January arrives, your window for catching errors, reconciling data inconsistencies, and correcting eligibility calculations has already closed.

Waiting until January will expose you to issues like incomplete records, rushed filings, and data mismatches that trigger IRS scrutiny.

This guide reveals how to determine your ALE status and execute a hassle-free data collection process.

What Is ACA Reporting and Who Must Comply?

Under the Affordable Care Act, certain employers must annually report information to the IRS about the health coverage they offer (or don’t offer) to employees. This reporting fulfills two major purposes:

• It informs the IRS whether an employer meets the employer shared responsibility (or “employer mandate”) requirements under Section 4980H, meaning whether minimum essential coverage was offered to full-time employees and their dependents.
• It supports individual taxpayer subsidy and premium tax credit determinations, especially when employees purchase coverage via the Marketplace.

ALEs vs. Small Employers: Who Must Report?

An ALE is any employer (or combined group of related employers) that had, on average, 50 or more full-time and full-time equivalent (FTE) employees in the prior calendar year.

Small employers (those under the threshold) are generally not subject to the employer shared responsibility provisions and do not need to file the ACA employer reporting forms, unless they sponsor self-insured health plans, in which case limited reporting may apply under other ACA sections (Section 6055).

This threshold is foundational to whether your organization must comply with the ACA’s employer mandate.

In practice, even if an employer does not reach the 50-employee mark, they must still check whether they qualify under aggregated employer or controlled group rules, which may combine workforce counts across related entities.

Confirming Your 2026 ALE Status

An Applicable Large Employer (ALE) is the classification under the ACA that triggers certain employer responsibilities, such as offering health coverage and filing IRS information returns (Forms 1094-C and 1095-C).

ALE status is predicated on employing 50 or more full-time equivalent (FTE) employees, on average, during the prior calendar year.

For 2026 reporting purposes, you must calculate your ALE status based on your 2025 workforce numbers. That look-back approach ensures consistency: your staffing levels during 2025 determine whether you’ll be treated as an ALE in 2026 (and thus subject to employer mandate obligations).

How to Calculate Full-Time and Full-Time Equivalent Employees

To determine whether you meet that 50-employee threshold, you must add:

• Your true full-time employees; those working at least 30 hours per week (or 130 hours per month).
• Part-time and variable-hour employees, converted into FTEs using a standard formula.

FTE Formula (monthly):

FTE = (Total hours worked by non-full-time employees that month ÷ 120) + Number of full-time employees

• When tallying part-timers, you cap each individual’s monthly hours at 120 for the calculation.
• You then divide that cumulative part-time hours number by 120 to yield the FTE count.
• Add that number to your full-time headcount to get your total FTEs for that month.
• Finally, average across all 12 months of 2025 (i.e., sum monthly totals ÷ 12). If the average is 50 or more, you're an ALE for 2026.

Example:

• 38 employees working full-time (≥130 hours/month)
• 15 part-time employees combining for a total of 1,800 hours in a given month
• Part-time hours capped at 120 per employee: 15 × 120 = 1,800 (so no further cap binds here)
• FTE from part-time = 1,800 ÷ 120 = 15
• Total FTE count that month = 38 + 15 = 53

The example above shows that month alone pushes you past the threshold

Repeat this process for all months and calculate the average to ensure consistency. If your yearlong average is 50 or above, you’re classified as an ALE.

Many modern HRIS, payroll, and ACA compliance tools (including those Chore offers as part of its operations dashboard) can automate FTE calculations, apply rounding rules, and generate reports. This automation reduces error and administrative burden.

How Controlled Groups Affect ALE Status

ALE status isn’t determined in isolation for each legal entity if you’re part of a controlled or aggregated employer group.

If multiple companies are related by common ownership or control, they must aggregate their workforce when calculating ALE status. In effect, all employees across the group are pooled together, and the total FTE count is applied as if one entity.

This means even if a subsidiary or division individually has fewer than 50 FTEs, the group’s combined total might push the entire enterprise into ALE status. Once one entity is treated as an ALE, each component must follow the employer shared responsibility and reporting rules.

Be careful if your corporate structure has parent-subsidiary, sister companies, or ownership overlaps: failing to aggregate correctly can lead to misclassification, surprise liabilities, or audit exposure.

Documenting and Retaining ALE Determination

When the IRS or auditors come knocking, one of the first things they’ll request is your method, worksheets, and rationale for how you determined ALE status. Hence, here are the best practices for documentation:

• Maintain monthly spreadsheets or system exports showing your headcount, total hours, FTE calculations, and averaging for each month.
• Record assumptions and caps used, such as the 120-hour cap per part-timer.
• Keep controlled group aggregation worksheets, if relevant.
• Store all prior years’ ALE determination files and preserve them for at least six years, matching IRS recommendation windows.
• Use secure, retrievable storage (encrypted cloud, internal records systems) and ensure versioning so you can demonstrate changes over time.

This helps you respond quickly to inquiries and shows that your ALE status was determined in good faith, thereby reducing the risk of penalties.

Kicking Off the 1095-C Data Pull

Why Start 1095-C Data Gathering in December

Beginning your 1095-C data extraction in December gives you enough time to detect errors, gaps, or inconsistencies before filing deadlines. Early preparation reduces the risk of filing delays, which can lead to late penalties and IRS letters.

When data collection is left until January or February, teams often rush, thus increasing the risk of omissions or mismatches in Social Security numbers, coverage months, or offer codes.

Late data collection also increases the potential for incomplete or mismatched reporting. For example, if an employee’s record changed midyear or a coverage vendor’s data hasn’t been fully reconciled, those updates may lag or go unnoticed in a compressed timeline.

In worst cases, the IRS may reject or flag your submission for mismatches, triggering audits or follow-up correspondence.

What Data You Need for Form 1095-C

Here’s a breakdown of the important fields your HR, Payroll, and Benefits teams must compile for each full-time employee (and in some cases, for dependents in self-insured plans):

Where to Source ACA Data

To build a full 1095-C dataset, you’ll often need to get data from:

• Payroll systems: Primary source for hours worked, premium deductions, and status changes
• HRIS platforms: Employee demographics, hire/termination dates, class changes
• Benefits administration systems: Coverage elections, vendor statements, plan tiers
• COBRA or third-party vendors: For any employees covered via third-party administration or COBRA continuation

One of the common challenges is data integration across disparate platforms. For instance, the benefits vendor may deliver coverage election data in a CSV format that doesn’t align with payroll’s schema.

To tackle this, build data mapping templates in December, and automate import scripts where possible to avoid mismatches or manual transcription errors.

Here at Chore, we emphasize compliance efficiency and system integration. Here’s a guide that shows how we handle aggregated employer status and data centralization.

Data Validation

Here’s how to validate your data before finalizing your 1095-C files:

• Flag invalid SSNs (e.g., wrong length or pattern)
• Detect missing or inconsistent offer codes (e.g., months coded 1G when no offer was made)
• Identify zero or blank premium amounts where coverage was supposed to be offered
• Cross-check address formatting or duplicate entries

Modern ACA reporting software often includes validation engines that run these checks automatically and produce exception reports to correct. Use those tools heavily before submission.

Reconcile with your prior year 1095-C filings. If an employee’s coverage pattern is different this year, it’s worth investigating potential system or data-entry changes.

Preparing for 2026 ACA Filing Deadlines

ACA Deadlines for 2026

Here’s what to expect for your 2026 reporting year:

Employee Distribution Deadline

Furnish Form 1095-C to full-time employees by March 2, 2026 (or the closest business day). Historically, the IRS has granted a 30-day extension to the original January 31 date, which pushes the deadline into early March.

IRS Filing (e-file / Paper)

The deadline to file Forms 1094-C and 1095-C with the IRS is at the end of March.

For organizations that must file electronically, that deadline is March 31, 2026 (or the next business day).

If you qualify for paper filing (i.e., you have 10 or fewer information returns), the deadline may fall earlier (commonly February 28 in prior years).

Anticipated Changes and Extensions

Monitor IRS announcements for late-breaking changes. Recent legislative changes under the Employer Reporting Improvement Act may alter furnishing rules, extend IRS response windows, or change how electronic delivery is handled.

How to Avoid Common ACA Filing Errors

Even with the right deadlines and filing method, reporting errors are a top cause of penalties. Here are frequent errors and how to avoid them:

How to Streamline ACA Year-End Preparation

Here are proven tips to optimize your ACA year-end preparation, especially your 1095-C workflows:

Use Automation and Compliance Software to Ensure Accuracy

Manual processes are a liability when dealing with complex ACA rules. Modern ACA automation tools reduce human error, enforce business logic, and keep you audit-ready. These platforms integrate with your payroll, HRIS, and benefits systems; automatically tracking eligibility, hours, and coverage codes.

For example, Chore’s ACA compliance workflows can trigger alerts when your full-time equivalent (FTE) counts edges toward 50, generate draft 1095-C/1094-C forms, and flag data inconsistencies.

When choosing software, prioritize these features:

• Real-time compliance alerts (e.g., missing SSN, invalid coverage codes)
• Dynamic policy updates (automatic rule changes)
• Integration with payroll and benefits systems
• Audit trail and version history
• Bulk filing and e-submission capabilities

Conduct Mid-Year Audits and Employee Eligibility Reviews

As discussed earlier, it’s not advisable to wait until December before reviewing your workforce. Instead, conduct mid-year audits:

• Reconcile every employee’s hours vs. eligibility thresholds
• Reclassify employees whose status has changed (full-time vs variable)
• Check coverage gaps like late hires or terminations
• Correct data errors (e.g., missing SSNs, name mismatches) early

These allow you to fix problems before the end-of-year rush. They also reduce surprise liability by detecting anomalies months in advance.

Coordinate Across Departments Early

ACA compliance cuts across several teams: HR, Payroll, Benefits, Legal, and IT. Yet in many organizations, they operate separately. This can lead to inconsistent data.

Create a cross-functional ACA task force by October that meets monthly through year-end. Agenda items should include: data feeds from payroll, coding rules, employee communication (for 1095-C distribution), and reconciliation. Assign clear “ACA data owner” responsibilities and hold interdepartmental progress reviews.

When teams talk early, you avoid delays where HR is waiting on payroll or benefits are waiting on eligibility data.

Keep Up with IRS ACA Updates and Code Changes

IRS guidance, affordability thresholds, penalty amounts, and safe harbor rules change every year. It is, therefore, important to stay current.

Subscribe to IRS newsletters, use compliance software that auto-updates rules, and review your policies annually. For example, if a new penalty notice procedure or extension takes effect, your processes must reflect it.

Set a December “rule-change review” deadline so your team, software, and workflows are aligned before data pulling begins.

Work with ACA Compliance Vendors for Filing and Data Reconciliation

Even the best in-house teams benefit from external support. Reputable ACA compliance vendors offer expertise in complex cases, e-filing, amendment workflows, and penalty defense.

Engage a vendor early (in Q4) to get rid of challenges like:

• Handling corrected or replacement 1095-Cs
• Responding to IRS “Letter 226-J” penalty notices
• Managing multi-state or international compliance
• Merging data from different benefits systems

When your vendor has your data and timelines early, they can work as an extension of your team, thus reducing risk, load, and compliance gaps.

December Checklist for ACA Prep

Use this ACA December checklist to ensure you head into the new year fully prepared for ACA compliance. Each item is important in your ACA prep guide, so tick them off carefully:

• Confirm ALE status: Re-verify that your organization meets (or does not meet) the ALE threshold for 2026 based on your 2025 workforce.
• Verify controlled group status: If your company is part of a parent/subsidiary or other affiliated entities, check whether you fall under aggregation rules that may consolidate employee counts.
• Start pulling 1095-C data: Collect important data now; employee identifiers, coverage offers, premium amounts, and employment dates, to avoid delays or last-minute rush.
• Validate employee data: Run quality checks for missing or invalid SSNs, inconsistent names, or incomplete coverage codes. It’s easier to correct errors at this stage.
• Review deadlines and assign responsibilities: Map out your internal timeline; when to distribute forms, when to e-file with the IRS, and who is accountable within HR, payroll, or compliance teams.

Simplify Your Startup’s ACA Compliance with Chore

Meeting ACA requirements as a fast-growing startup shouldn't drain your limited resources. While calculating FTEs, managing 1095-C data pulls, and tracking controlled group status can overwhelm lean teams, Chore transforms this complexity into streamlined automation.

Chore's integrated platform eliminates the December scramble by:

• Automating FTE calculations as you approach the 50-employee threshold, triggering real-time alerts before you become an ALE
• Centralizing data across payroll, HRIS, and benefits systems into one compliance dashboard (no more manual spreadsheet reconciliation)
• Validating employee information continuously, flagging invalid SSNs, missing coverage codes, and address inconsistencies before filing deadlines
• Generating audit-ready documentation that proves your ALE determination methodology and supports IRS inquiry responses

Instead of coordinating between disconnected HR, payroll, and benefits teams, Chore's workflows synchronize all stakeholders automatically. You'll avoid the common mistakes that trigger penalties (i.e., late filings, mismatched data, and incorrect offer codes), while freeing your team to focus on growth.

Ready to eliminate ACA stress? Schedule a demo with Chore and discover how you can stay compliant without adding headcount or complexity.

FAQs

Why should I confirm my ALE status in December for 2026 ACA reporting?

December is the perfect time to confirm ALE status because the determination is based on your 2025 employee data. Verifying now gives you time to gather documentation, correct errors, and prepare for ACA filing deadlines early in 2026.

What is Form 1095-C, and why is it important?

Form 1095-C is an IRS form that ALEs must file annually to report the health insurance coverage offered to each full-time employee. It ensures compliance with the ACA’s employer mandate and provides proof to the IRS and employees that appropriate coverage was offered.

What data do I need to collect for Form 1095-C preparation?

The data required for Form 1095-C include:

• Employee names, SSNs, and addresses
• Coverage offer codes for each month
• Employment start and end dates
• Employee premium contribution amounts
• Dependent coverage details (if applicable)