The Cost of Non-Compliance: How Small Errors Lead to Big Penalties

ACA compliance isn’t just about meeting deadlines — it’s about ensuring accuracy. Even minor filing errors, such as incorrect IRS codes or misclassified employees, can trigger substantial penalties. With the IRS increasing audit scrutiny, these mistakes are more likely to be detected, making proactive compliance essential.

At Trusaic, we’ve seen how avoidable errors result in costly fines. That’s why our ACA compliance solution is built to identify errors before submission and provide actionable insights to correct them. This blog explores common ACA compliance mistakes, their financial impact, and how our solution ensures accuracy through advanced error detection and penalty risk assessment.

The High Cost of Small ACA Errors

Even seemingly minor ACA filing mistakes can lead to IRS rejections and costly penalties. Common errors include:

• Incorrect Line 14 and Line 16 Codes
  • Certain code combinations, such as 1H/2C (no offer of coverage, but employee enrolled in health coverage), create contradictions and trigger IRS scrutiny.
• Missing or Incorrect Contribution Amounts on Line 15
  • If an employer uses offer codes like 1B, 1C, or 1E on Line 14, Line 15 must include the employee’s required contribution. Omitting or misreporting this amount leads to compliance issues.
• Misclassified Employees
  • Employers who incorrectly classify full-time employees as part-time or variable-hour workers may fail to offer required coverage, leading to Employer Shared Responsibility Penalties (ESRP).
• Incomplete or Incorrect Employee Information
  • Common data entry issues include:
    • Missing the plan start month, a required field for IRS processing.
    • Using invalid special characters (e.g., periods, accent marks) in employee or dependent names.
    • Exceeding character limits for employee names (20 characters) or address fields (35 characters for Address 1 & 2, 22 characters for City, 2 characters for State, 5 characters for ZIP).
• Incorrect ZIP Codes
  • East Coast ZIP codes frequently drop the leading zero, causing IRS rejections.

These mistakes can result in penalties under IRC Sections 4980H(a) and 4980H(b), which are increasing each year.

Understanding the Financial Impact of Non-Compliance

The IRS enforces ACA penalties through two key provisions:

• 4980H(a) Penalty (“A” Penalty)
  • If an employer fails to offer minimum essential coverage to at least 95% of full-time employees, and at least one employee receives a premium tax credit, the employer faces a penalty of $2,970 per full-time employee in 2024.
• 4980H(b) Penalty (“B” Penalty)
  • If an employer offers coverage, but it is unaffordable or does not meet minimum value standards, the penalty is $4,460 per affected employee in 2024.

For large employers, these penalties can quickly escalate into the millions. The IRS is actively issuing Letter 226J penalty notices for past tax years, making it more important than ever to ensure compliance.

How Trusaic Prevents Costly Mistakes

Trusaic’s ACA Compliance solution provides intelligent automation and expert compliance support to eliminate filing errors before they result in IRS penalties. Our key features include:

• Advanced Error Detection
  • Automated validation checks for incorrect codes, missing contribution amounts, and misclassified employees before filing.
• Penalty Risk Assessment
  • Identifies potential penalties so employers can address compliance risks before the IRS does.
• Time-Series Data Tracking
  • Unlike traditional ACA solutions that overwrite data monthly, our system maintains historical records, ensuring accurate reporting for employee status changes.
• Seamless Data Integration
  • Bi-directional integrations with Workday, UKG Ready, and other HR platforms ensure real-time, error-free ACA reporting.
• Expert Compliance Support
  • Our team of ACA specialists helps employers navigate IRS audits, reducing the risk of costly penalties.

Don’t Let Small Errors Lead to Big Penalties

With IRS audits increasing and penalties rising, employers must take a proactive approach to ACA compliance. The best way to avoid fines is through automated error detection, penalty risk assessment, and expert compliance support — all of which Trusaic delivers.

Don’t wait until the IRS issues a penalty notice. Schedule a demo today to see how Trusaic’s ACA compliance solution can protect your business from costly ACA mistakes.