SMBs Are Racking Up ACA Penalties. Here’s How to Avoid Them.

Don’t Think You Have to Worry About the ACA Mandate? Think Again.

Each year, the IRS starts sending out penalty letters — and businesses keep getting caught off guard.

One Florida-based company learned the hard way. Their broker claimed ACA reporting was handled. It wasn’t. They ignored IRS Letter 226J, missed the 30-day response window and racked up tens of thousands in fees before it was finally resolved — three years later.

That’s not rare. We’ve seen businesses with 55, 75, even 100 employees — none of them huge, all of them vulnerable. And at James Moore HR Solutions, we’ve helped clients recover or avoid more than $5.5 million in penalties by stepping in early.

If you think you’re not at risk, think again. If you’re not sure where you stand, now’s the time to find out.

The Employer Mandate Was Never Repealed

Let’s clear up the confusion. Yes, the individual mandate was eliminated in 2019. But the employer mandate is still fully enforced by the IRS.

If your business has 50 or more full-time employees (or equivalents), you’re considered an Applicable Large Employer (ALE). That means you must:

1. Offer, minimum essential coverage that provides minimum value to at least 95% of full-time staff and their dependents
2. File certain IRS Forms annually to prove it

Fail to meet either requirement? The IRS can — and will — assess penalties. In 2024, the fine for not offering minimum essential coverage was $2,970 per eligible employee (the “a” penalty).

And if the coverage you offered wasn’t affordable or didn’t meet minimum value? That would cost your company $4,460 per employee (the “b” penalty).

And let’s not forget that if you fail to file the right reporting forms to the IRS, and/or fail to furnish the forms to the eligible employees, that’s an additional penalty – $310 per return x 2.

You could dig through IRS regulations on Employer Shared Responsibility — or you could let us show you exactly how it impacts your business and what to do next.
These rules haven’t gone away. But too many businesses are operating like they have. That’s a costly mistake.

Assumptions That Are Costing SMBs Thousands

We hear it all the time:

• “We offer health insurance, so we’re fine.”
• “Our accountant said ACA reporting doesn’t apply to us.”
• “Our broker submitted the forms.”

But here’s the problem: the IRS doesn’t care what you thought was handled. They care what was actually filed—and how.

Your coverage has to meet two specific standards: minimum value and affordability (under 8.39% of household income in 2024). Even if you offer insurance, if it doesn’t meet these benchmarks — or your codes are wrong — you’re still on the hook.

Common ACA mistakes we see:

• Misclassified employees or missed measurement periods
• Inaccurate or incomplete forms
• Deadlines missed or forms never filed at all

And remember: the IRS has up to three years to assess penalties. So that mistake from 2022? It could come back in 2025 or 2026 with interest and fines attached.

Health Insurance Prices Are Rising — So Are the Stakes

This year, premiums are climbing across the board. That’s squeezing SMB budgets — and tempting leaders to cut corners. But scaling back without understanding compliance requirements is a recipe for penalties.

We don’t just help you minimize costs — we help you do it strategically and legally. That means reviewing plan design, checking affordability thresholds and confirming that your reporting tells the right story.

What ACA Compliance Actually Requires

If you’re an ALE, here’s what you need to do — every year:

1. Offer compliant coverage to at least 95% of full-time employees
2. Ensure coverage is affordable under IRS rules
3. Track full-time status and eligibility each month
4. File with the correct forms with the IRS
5. Distribute the forms as required to all eligible employees

And the data has to match. Premiums. Hours worked. Hire dates. Waiting periods. Safe harbor codes. Even one bad data point could flag your business.

That’s why ACA compliance isn’t a checkbox — it’s a strategic HR function. One that ties directly to risk, reputation and the bottom line.

Your HR Team Holds the Keys

ACA compliance isn’t just about health plans — it’s about how your HR team classifies employees, tracks hours, coordinates with payroll and manages vendor relationships.

We’ve reviewed hundreds of employer filings where the HR team assumed their broker, payroll company or accountant “had it covered.”

Spoiler alert: many didn’t.

That’s why more SMBs are turning to us for ACA reviews. We look at everything: employee counts, affordability calculations, vendor filings, safe harbor usage. One second opinion can save years of cleanup.

What to Do If You’ve Received an IRS Letter

If Letter 226J or 5699 just hit your inbox, don’t panic — but don’t delay.

1. Act fast: You typically have 30 days to respond.
2. Get your paperwork: Gather prior filings, payroll data, plan documents and vendor communications.
3. Request a review: One wrong code can mean thousands in penalties — we’ve seen it.

And if you haven’t received a letter but aren’t sure you’re compliant? Now’s the time to get ahead of it.

Avoid the Penalties. Protect Your Business.

We’ve helped businesses across multiple industries avoid millions in ACA penalties. Not because they never made a mistake — but because they acted early.

Don’t wait for a notice to tell you something’s wrong. Whether you need help responding to the IRS, a second opinion on a vendor’s work or a clear look at where your HR operations really stand — our HR Peace of Mind Assessment can help.

This deep dive into your processes identifies what’s working, what’s missing and where your risk exposure lies. Because if you don’t know, you can’t improve it.

Contact James Moore today to schedule your Peace of Mind Assessment. One conversation now could save you years of penalties and costly cleanup.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.