The IRS is turning up the heat on ACA compliance.
The IRS is sending out penalty notices fast and furious, including Letter 5699 for the 2023 tax year and 226J for the 2022 tax year. Organizations can no longer afford to take a reactive approach. An audit — or worse, a fine — isn’t a matter of if, but when. The key to navigating IRS scrutiny? Preparation.
In this blog, we explore what triggers ACA audits, where most employers fall short, and what you can do now to ensure your compliance program is airtight and audit-ready.
Why ACA Audits Are On the Rise
Recent enforcement activity makes it clear: the IRS is cracking down. Employers of all sizes have reported receiving ACA penalty letters — often unexpectedly — for tax years long past.
Here are the most common notices:
- Letter 226J: Proposes a penalty (Employer Shared Responsibility Payment) for failing to offer affordable coverage to full-time employees or failing to offer Minimum Essential Coverage to at least 95% of full-time employees..
- Letter 5699: Requests ACA filings (Forms 1094-C/1095-C) from employers believed to be non-filers.
- Letter 227: Provides next steps following a 226J letter, including payment or appeal options.
These notices don’t just signal potential penalties — they indicate a deeper audit process that requires proof, fast. And for organizations without a clean recordkeeping or compliance trail, that’s a serious risk.
Common Audit Triggers
ACA penalties are often the result of small but costly errors that accumulate over time. Among the most frequent compliance breakdowns:
- Inaccurate employee classification: Misreporting part-time employees as full-time (or vice versa) can create large coverage gaps.
- Missing or mismatched ACA codes: Improper coding on Line 14 or Line 16 is a red flag to the IRS.
- Affordability miscalculations: Failing to meet the required affordability threshold under IRS safe harbors invites scrutiny.
- Rejected filings: Data formatting issues — like special characters, incorrect ZIP codes, or field length violations — often go unnoticed until it’s too late.
The challenge isn’t just fixing these errors once identified—it’s catching them before they turn into penalties.
Why Manual Processes Fall Short
Many employers still rely on spreadsheets, manual exports, or disconnected systems for ACA reporting. Unfortunately, this patchwork approach often leads to:
- Data mismatches between payroll, HR, and benefits systems
- Lack of audit trails to support eligibility or offer tracking
- Difficulty retrieving documentation when responding to IRS notices
Without a unified system and full data visibility, responding to an audit can become a time-consuming — and legally risky — exercise.
Building an Audit-Ready Compliance Strategy
Getting ahead of an ACA audit means shifting from reactive to proactive. Leading employers are investing in tools and processes that:
1. Centralize and validate ACA data year-round
Using Trusaic’s solution that has bi-directional integrations with Workday and UKG enables employers to consolidate payroll, benefits, and HR data in one place — with built-in error detection and formatting validation.
2. Identify risks before the IRS does
Trusaic’s Penalty Risk Assessment tool pinpoints affordability gaps, code mismatches, and classification issues before they result in a notice—allowing for quick course correction.
3. Maintain detailed audit trails
Trusaic captures monthly time-series snapshots of employee eligibility and coverage, enabling a legally defensible response if the IRS ever questions your data.
4. Respond quickly and confidently
If a notice does arrive, organizations with a plan in place — supported by clean documentation and expert guidance — are far better positioned to resolve or appeal successfully.
Staying Ahead of the Regulatory Curve
ACA compliance isn’t static. Each year brings:
- New affordability thresholds
- Updated form codes
- Changes to state-level reporting rules
Employers that stay informed and adapt proactively are less likely to face audit surprises. That’s why Trusaic provides clients with ongoing regulatory updates, pre-audit health checks, and expert support for responding to IRS letters like 226J, 227, and 5699.
Final Thoughts
The best time to prepare for an ACA audit is before it starts. With IRS enforcement on the rise, accurate records, seamless data integration, and proactive monitoring are no longer optional — they’re essential.
Trusaic’s ACA Compliance Solution is designed to eliminate uncertainty, reduce audit risk, and help employers stay compliant year after year.
Is your ACA compliance strategy audit-ready? Schedule a demo to see how Trusaic can help you prepare, prevent penalties, and take control of your ACA obligations.