Top 1095-C Mistakes Employers Make and How to Prevent Them

Executive overview

Form 1095-C is one of the most error-prone ACA compliance documents employers face, and mistakes can trigger IRS audits or six-figure penalty bills. The two root causes of almost every filing error are employers not realising they owe someone a form, and employee data that does not match IRS records.

The "sledgehammer" penalty — formally the A penalty — can reach nearly $1 million for a mid-sized employer that fails to offer coverage to at least 95% of full-time staff.

Building tight onboarding, offboarding, and record-keeping processes, ideally inside an HR all-in-one system, is the most reliable way to stay compliant without spending dozens of hours on manual form prep.

ACA and form 1095-C basics

• Applicable large employers (ALEs) are organisations averaging 50+ full-time employees or full-time equivalents (FTEs) in the prior year
• Part-time hours count: two part-timers at 20 hours each equal one FTE, so headcount can push a company into ALE territory unexpectedly
• ALEs must offer affordable minimum essential coverage to at least 95% of full-time employees and their dependents
• Affordability is measured against household income; the 2023 threshold was 9.12% — if the employee-only premium exceeds that share, coverage is not affordable
• Safe harbors let employers approximate affordability without knowing exact household incomes
• One 1094-C per EIN summarises coverage for the IRS; one 1095-C per employee must be filed with the IRS and furnished to each individual
• Starting in 2024, employers filing 10 or more total IRS forms must e-file — paper submission is no longer available at that volume

The two categories of common errors

• Employers fail to furnish a 1095-C because an employee quit mid-year, was misclassified as part-time, or was deleted from the system after termination
• An employee enrolled with the carrier but not in the HR system simply does not appear on the filing list
• Employee information mismatches occur when workers use nicknames, enter incorrect SSNs, or fail to provide dependent SSNs
• Any mismatch between a 1095-C and IRS records can trigger an audit; records may be requested years after the filing period

What the penalties actually cost

• The A penalty (sledgehammer) applies when an ALE fails to offer coverage to at least 95% of full-time employees: $2,970 per employee per year in 2024 (minus the first 30 employees)
• For a 350-person company the A penalty calculation is $2,970 × (350 − 30) = $950,400
• The B penalty (tack hammer) applies when coverage is offered but is unaffordable or below minimum value: $4,460 per affected employee per year in 2024
• Just one employee claiming a premium tax credit on the ACA exchange is enough to alert the IRS and trigger a cross-reference audit of all 1095-C filings

Preventive measures

• Use an onboarding checklist that requires legal names, correct SSNs, and current mailing addresses — make clear that nicknames are not acceptable for federal forms
• Include a preferred-name field separately so staff are addressed correctly day-to-day without corrupting legal-name records
• Send quarterly reminders for employees to update their information when they move, change their name, or add dependents
• Retain 1094-C and 1095-C records for at least three years from the report date — an HRAS that stores records indefinitely removes the risk of losing terminated-employee data
• Never delete employee accounts from the HR system; historical records covering time and attendance, benefits elections, and dates of employment can be critical if the IRS requests past-year data
• Use an offboarding checklist to verify that mailing addresses are current and that a contact method is on file before the employee leaves

The case for an HR all-in-one system

• A connected HRAS auto-populates 1095-C forms from onboarding and benefits data, eliminating manual re-entry of names, addresses, and SSNs
• E-filing capability within the platform satisfies the 2024 mandatory e-file requirement with minimal extra steps
• Self-service portals let employees update their own information, reducing the HR team's administrative burden during annual filing season
• Integrated compliance reduces 1095-C preparation time dramatically — the presenter notes going from many hours to roughly two hours per year