December is a make-or-break month for your ACA compliance. This is because by year’s end, your organization must confirm whether you're an Applicable Large Employer (ALE) for 2026, and begin pulling your 1095-C reporting data before the holiday rush complicates coordination across HR, payroll, and benefits teams.

At year-end, employers must review headcounts, assess full-time equivalents, reconcile coverage offers, and ensure proper tracking of affordability and safe harbor data. Getting behind this schedule risks missing IRS deadlines, inviting steep §4980H penalties, and exposing your organization to audit risks and internal operational challenges.

In this article, you'll learn how to:

• Know precisely if your company triggers federal employer-mandate obligations.
• Collect and verify all employee data, offers, and affordability metrics.
• Set up workflows, checkpoints, and cross-team processes so early January reporting doesn’t become a firefight.

An overview of the ACA Employer Mandate

The ACA employer mandate (also known as the “employer shared responsibility” provisions) is an important pillar of U.S. health benefits law. If you qualify as an ALE, you must offer affordable, minimum-value health coverage to your full-time employees (and their dependents), or risk IRS penalties and reporting obligations.

Employer Obligations Under the ACA

Under Section 4980H of the Internal Revenue Code, ALEs are required to satisfy two duties:

• Offer coverage: At least 95% of full-time employees (defined as those working 30+ hours/week or 130 hours/month) and their dependents must be offered minimum essential coverage (MEC) that meets both minimum value and affordability tests.
• Report to the IRS and employees: Annually file Forms 1094-C and 1095-C, showing which months each employee was offered coverage, what plan, and whether it met the affordability standard.

If an ALE fails either of these, it can face shared responsibility penalties for failing to offer coverage (Section 4980H(a)) or for offering coverage that’s unaffordable or lacking minimum value (Section 4980H(b)).

One of our guides walks through how to determine ALE status even before you hit 50 employees, and why early planning is important.

What Makes an Organization an ALE?

An employer is an Applicable Large Employer in year N if, in the prior calendar year (N–1), it averaged 50 or more full-time employees plus full-time equivalents (FTEs). The formula:

• Count all full-time employees (at least 130 hours/month).
• Aggregate part-time hours and divide by 120 (capped per worker) to convert to FTEs.
• Sum full-time + FTE counts each month, then average across 12 months.

If the average reaches 50 or more, you’re designated an ALE for year N, and that status doesn’t change mid-year.

Why ALE Determination is Important for Reporting and Penalties

Only ALEs must file Forms 1094-C/1095-C. If you're not an ALE, these obligations don’t apply.

But if you are an ALE and haven’t properly determined it, you risk:

• Underreporting, leading to IRS notices or audits
• Inadvertently triggering penalties because you didn’t meet offer, affordability, or minimum value rules
• Inconsistent recordkeeping, which makes your 1095-C data pull far more error-prone

Hence, we emphasize early tracking of FTE counts and offer tools to monitor ALE thresholds, so growth doesn’t catch you off guard.

Step 1: Confirm Your 2026 ALE Status

An ALE is an employer that must comply with the ACA’s employer shared responsibility and reporting rules because its workforce crosses a defined size threshold. The key trigger is 50 or more full-time employees or full-time equivalent (FTE) employees, on average, during the prior calendar year.

ALE status puts an employer into scope for obligations like offering health coverage (that’s affordable and meets minimum value) and filing IRS Forms 1094-C / 1095-C.

How to Calculate ALE Status for 2026

Monthly Employee Headcount Formula

To determine whether your organization is an ALE for 2026, you’ll use the prior year’s data. The formula works like this:

• Count full-time employees each month (those meeting the ACA definition).
• Convert part-time hours into FTEs using a standard formula.
• Sum full-time and FTE counts for each month.
• Average over 12 months (sum all 12 months, divide by 12).
• If the rounded-down average is 50 or more, you are an ALE for 2026.

A full-time (FT) employee under ACA works at least 30 hours per week (or 130 hours in a calendar month); the IRS treats that as the threshold for full-time service.

A full-time equivalent (FTE) is not a person but a way to convert part-time or variable-hour workers into a full-time equivalent unit. Here’s the standard method:

• Add all hours worked by non-full-time employees in a month (but cap each individual’s hours at 120).
• Divide that total by 120 to get the number of FTEs for that month.
• Then add that FTE number to your full-time headcount for the month.

For example, if you have 40 full-time employees and part-timers whose combined hours (capped) equal 1,200 in a month, that equates to 1,200 ÷ 120 = 10 FTEs.

Hence, the total for that month = 50.

Seasonal Workforce Considerations

If your total exceeds 50 FTEs only for 120 days or fewer during a year, and that excess is due to seasonal workers, then you may exclude those extra employees from the calculation.

For instance, a retail business hiring holiday staff might temporarily go above 50 FTEs, but if that season lasts under 120 days, those extra workers may be excluded from the ALE determination.

Controlled Group / Aggregation Rules

If your company is part of a controlled group (i.e., related entities under IRS §414 rules), you must aggregate employees across all entities before applying the ALE test. Even if a single entity would fall under 50, the combined total may push the whole group into ALE status.

This means each entity in the group may then have ACA obligations based on the group’s status, even if its internal headcount is lower.

Step 2: Start Your 1095-C Data Pull in December

Why December Is the Right Time

By December, almost all staffing changes for the calendar year have been made, leaving you with a relatively stable population. That makes it the best month to begin your 1095-C data pull.

Waiting until January or February often leads to rushed decisions, incomplete information, and increased risk of filing errors. Instead, beginning in December gives you time to validate data, coordinate with internal teams, and uncover discrepancies early.

Also, ACA reporting isn’t just HR’s job. Effective cross-team collaboration between HR, payroll, benefits, legal/compliance is important. December gives you an opportunity to sync all stakeholders, clarify responsibilities, and lock in the data flow before year-end chaos sets in.

Data Needed for Form 1095-C

To generate accurate 1095-C forms, you’ll need different data. These include:

• Employee demographics: Name, address, Social Security Number (or other tax identifier), employment status, dates of hire or termination.
• Coverage offers and affordability: Month-by-month records showing whether a health insurance offer was made to the employee (and dependents) and what the employee’s share of the premium was.
• Affordability safe harbor methods: Since the IRS permits multiple safe harbor approaches, you’ll need to know which method the employer is using:

• W-2 safe harbor: Use the employee’s prior year W-2 wages to test affordability.
• Rate of Pay safe harbor: Use a fixed hourly or salary rate against a defined threshold.
• Federal Poverty Line (FPL) safe harbor: Compare the employee’s contribution against a percentage of the FPL.

Different employees may use different safe harbors depending on their eligibility or plan year. Picking the right codes (for example, on Lines 14 and 16) often depends on which safe harbor you apply.

Deadlines and IRS Filing Updates for 2026 Reporting

As you prepare for ACA filing in early 2026, it’s important to stay ahead of deadlines and new rules. Here’s what your year-end ACA checklist must include, with a focus on ACA filing deadlines 2026, the ACA electronic filing requirement, and state reporting rules for 2026.

Federal Filing and Distribution Deadlines (Forms 1094-C / 1095-C)

For the 2025 (calendar year) reporting cycle, which you’ll file in 2026, the IRS currently requires ALEs to furnish 1095-C forms to employees by March 3 (with the automatic 30-day extension in effect). 

The filing (to the IRS) deadline depends on the method:

• Paper filing (where allowed) must be completed by February 28.
• Electronic filing must be submitted by March 31.

These dates change slightly each year (e.g., March 2 if March 1 falls on a weekend), so always verify via the IRS instructions.

Electronic Filing Thresholds for 2026

The IRS requires ALEs submitting 250 or more information returns to file electronically via the ACA Information Returns (AIR) system.

However, in practice, many employers with 10 or more ACA forms already file electronically, as paper filing becomes less practical and IRS systems expect digital compliance. If your ACA vendor or payroll system supports direct AIR submission, build in validation and test-upload time before the deadline to catch errors.

State-Level ACA Reporting for 2026

Federal reporting isn’t enough in certain states; several maintain state ACA (or individual-mandate) reporting above and beyond the IRS requirements. As of now, key states include:

• California
• New Jersey
• Rhode Island
• Massachusetts
• District of Columbia

In these states, employers (or insurers) must submit ACA coverage data to state agencies, or share Part III coverage data from the 1095-C / 1095-B. Penalties depend on the state and may accrue per individual or daily noncompliance. Hence, coordinate your state filing calendar alongside your federal workflow.

How to Avoid Common ACA Compliance Mistakes

When preparing for ACA year-end compliance, even seasoned HR or benefits professionals can commit errors that trigger ACA compliance mistakes, IRS audits, or ACA penalties. Some of these errors (and how to prevent them) include:

Late ALE determination

It’s risky to wait until January (or later) to decide whether your organization is an ALE. By then, you’ve lost the opportunity to adjust benefits designs, staffing, or communications. Calculating your “FT + FTE” headcounts month by month should be an ongoing exercise.

Lock in your 2026 ALE status no later than December, so your ACA reporting and benefit offers align with certainty.

Incomplete or inaccurate 1095-C forms

Form 1095-C is delicate: month-by-month coverage codes, affordability indicators, termination dates, even safe-harbor logic. If fields are left blank or mismatched with your data system, the IRS may reject the submission, or worse, assess penalties.

Run trial prints, compare them to payroll/benefits data, and validate that all months are covered. Maintaining strong documentation and version control can help avoid ACA reporting errors.

Misunderstanding affordability thresholds

Many employers get into trouble by using an outdated percentage or a flawed safe-harbor method.

If your employee-share of premium exceeds the allowed threshold (usually a percent of household income or one of the standard safe-harbors), affected employees might qualify for a subsidy, and that triggers § 4980H(b) penalties.

Regularly benchmark your affordability standard (e.g., W-2 wages, rate-of-pay, or federal poverty line safe-harbor) and revisit it annually. As SHRM notes, adjusting to the current threshold is a key employer step in ACA compliance.

Ignoring state mandates

Even if you comply with federal ACA rules, you can’t afford to overlook state-level health-benefit reporting or “individual-mandate” obligations in states like California, New Jersey, or Massachusetts. Those states often require additional filings or conformity adjustments beyond Form 1095-C.

Ensure your calendar includes state deadlines and that your ACA reporting vendor or in-house team is aware of local requirements.

Not using ACA compliance technology

Manual spreadsheets or disparate HR/payroll systems are a recipe for mistakes. A modern ACA compliance platform or integrated solution can automatically calculate ALE status, encode 1095-C forms, flag affordability issues, and manage audit trails.

Chore’s HR and compliance stack is one example of combining operations, payroll, and compliance under one roof.

Automation reduces human error, ensures consistency across systems, and frees your compliance team to focus on strategy.

Checklist: December ACA Prep for 2026

As December is fast approaching, proactive steps now set the tone for a smooth ACA reporting season. Use this ACA December checklist to stay ahead:

• Confirm ALE status for 2026: Assess your full-time plus full-time equivalent employee count for the prior measurement period to verify if you qualify as an ALE.
• Begin 1095-C data pull: Gather all employee demographics, coverage offer history, and affordability metrics now; don’t wait until January. Use your HRIS, payroll, and benefits systems, and flag missing data early.
• Reconcile records: Cross-check payroll hours, HR records, and benefits enrollment. Resolve discrepancies (missed hire dates or coverage gaps) to avoid reporting errors.
• Review affordability safe harbors: Confirm which safe harbor method (W-2, Rate of Pay, Federal Poverty Line) your organization will use. Ensure all employee elections and payroll deductions align with your chosen approach.
• Prepare for IRS/state filings: Map out your deadlines for Forms 1094-C / 1095-C and any state-level ACA reports. Note electronic filing thresholds and calendar all reminders.

Streamline Your ACA Compliance Journey with Strategic Outsourcing

Startups struggling with ACA year-end complexity don't need to build in-house expertise from scratch. Smart founders recognize that confirming ALE status, pulling 1095-C data, and navigating IRS deadlines require specialized knowledge that distracts focus from business growth.

By partnering with a comprehensive HR services provider like Chore, you gain instant access to ACA compliance infrastructure without the overhead.

Chore's integrated platform handles automated FTE calculations, real-time ALE monitoring, cross-system data reconciliation, and error-proof 1095-C generation. Our experts stay current on IRS rules, state mandates, and affordability thresholds so you don't have to.

Instead of scrambling each December with spreadsheets and manual audits, startups using Chore benefit from proactive alerts, seamless payroll and benefits integration, and audit-ready documentation. This means avoiding §4980H penalties while freeing your lean team to focus on product development and customer acquisition.

Ready to eliminate ACA compliance stress? Book a free demo to discover how Chore can help you transform year-end chaos into a strategic advantage for your startup.

FAQs

What is ALE status, and why is it important for ACA compliance?

ALE (Applicable Large Employer) status under the ACA applies to employers with 50 or more full-time or full-time equivalent employees in the prior year.

It’s important because:

• ALEs must offer affordable, minimum essential health coverage to at least 95% of full-time employees and dependents.
• They are required to file IRS Forms 1094-C and 1095-C annually.
• Misclassifying can lead to significant IRS penalties.
• Some states also have their own ACA-style reporting rules tied to ALE status.

How do I calculate full-time equivalent employees under ACA?

To calculate Full-Time Equivalent (FTE) employees under ACA:

• Count full-time employees: Anyone averaging 30+ hours per week (or 130/month) counts as 1 FTE.
• Add part-time hours: Total all monthly hours worked by part-time staff, then divide by 120.
• Combine totals: Add full-time FTEs + part-time FTEs.
• Average over 12 months: If the yearly average is 50 or more FTEs, you’re an Applicable Large Employer (ALE) for the next year.

Do state ACA mandates apply if I’m already filing federally?

Yes, you must comply with state ACA mandates even if you already file federally. States like California, New Jersey, Rhode Island, Massachusetts, and D.C. require separate employer reporting to enforce their own individual coverage laws. Federal filings do not replace state filings, and missing them can lead to additional penalties.

What happens if I misreport ACA data to the IRS?

If you misreport ACA data to the IRS, you risk the following:

• Up to $310 per incorrect return (with millions in annual caps) for errors, late filings, or omissions.
• The IRS may assess large penalties if your reports suggest you didn’t offer affordable coverage.
• IRS notices, such as Letters 5699, 226J, or 972CG requiring quick correction or payment.
• Repeated errors increase the chance of broader IRS audits.
• Wrong 1095-C data can delay refunds and trigger complaints.