ACA Audits Are Increasing—Here’s How to Protect Your Business
If you’re an employer with 50 or more full-time employees, you’ve probably heard the warnings: ACA audits are on the rise.
And it’s true. The IRS has quietly stepped up its efforts to identify noncompliance under the Affordable Care Act (ACA)—especially when it comes to coverage reporting and affordability.
In short: if your ACA data isn’t in order, 2026 could be the year you get a letter you really don’t want to receive.
But don’t panic. ACA audits can be avoided—and even if you’re selected, they don’t have to be a nightmare. The key is understanding what triggers an audit, what the IRS is really looking for, and how to keep your records clean and compliant.
Let’s break it down, step by step.
Why ACA Audits Are Increasing
Since the Affordable Care Act took effect, the IRS has relied on employer reporting to track compliance with the Employer Shared Responsibility provisions (also called ESRP or “employer mandate”).
But in the early years, enforcement was slow. Many employers assumed the ACA had gone quiet. That’s changing.
Here’s what’s driving the new wave of ACA audits and enforcement:
Advanced data matching technology. The IRS now cross-references 1094-C and 1095-C data with employee tax filings, identifying discrepancies instantly.
Higher penalties. ACA fines increase each year for inflation, giving the IRS more incentive to pursue noncompliance.
Ongoing coverage gaps. Many employers still misunderstand the 95% coverage rule, affordability standards, or proper reporting requirements.
Increased government oversight. As healthcare costs rise, regulators are doubling down on ensuring every Applicable Large Employer (ALE) is offering affordable, compliant coverage.
In other words: the IRS has both the tools and the motivation to enforce ACA compliance more aggressively in 2026.
What Triggers an ACA Audit?
An ACA audit doesn’t happen randomly. The IRS uses employer reporting data to identify red flags that suggest possible noncompliance.
Common triggers include:
Missing or late 1094-C/1095-C forms
Incorrect employee data (like Social Security numbers or full-time status)\
Large discrepancies between reported hours and coverage offers
Employees who received premium tax credits (PTCs) through the Health Insurance Marketplace
Failure to meet the 95% offer requirement (meaning at least 95% of full-time employees must be offered Minimum Essential Coverage)
If your reporting indicates that eligible employees didn’t receive affordable coverage, expect to receive a Letter 226J—the IRS notice proposing an ACA penalty.
What Happens During an ACA Audit
Here’s how it usually plays out:
You receive a Letter 226J. This notice outlines potential penalties under Section 4980H(a) or 4980H(b) and provides detailed data on which employees triggered the issue.
You have 30 days to respond. You can agree, partially agree, or fully dispute the proposed penalty. Supporting documentation is required.
IRS reviews your response. They may accept your documentation or issue a revised notice (Letter 227) confirming or adjusting the penalty.
If unresolved, the issue can escalate to collections or further review.
Most employers who handle audits successfully have one thing in common: organized records and a clear benefits strategy that aligns with ACA rules.
How to Protect Your Business from ACA Audits
Avoiding an audit isn’t luck—it’s preparation.
Here are the five most effective steps employers can take to reduce their audit risk and stay compliant in 2026.
1. Offer Compliant Minimum Essential Coverage (MEC)
The simplest way to stay off the IRS radar? Offer a plan that meets the ACA’s Minimum Essential Coverage (MEC) standards to at least 95% of your full-time employees.
MEC plans satisfy the ACA’s coverage requirement by including preventive care, screenings, and basic health services. They’re an affordable way to:
Meet ACA compliance requirements
Avoid ESRP penalties
Protect your business during an audit
We specialize in ACA-compliant MEC plans that are easy to implement and tailored for industries with large hourly or part-time workforces—like hospitality, staffing, and home healthcare, for example.
When you offer EBA’s MEC coverage, you’re not just meeting the rules—you’re building an audit-ready paper trail.
2. Keep Accurate Employee Data
ACA audits are data-driven. If your records are inconsistent or incomplete, you’ll have a hard time defending yourself.
Make sure you’re tracking:
Employee hours (especially for variable-hour or seasonal workers)
Coverage offer dates and acceptance
Employee classifications (full-time, part-time, seasonal)
Corrections or updates to employee information
A small clerical error—like marking a 35-hour employee as part-time—can flag your report for review.
If your systems can’t track this accurately, consider a benefits administrator or ACA compliance partner who can handle it for you.
3. Understand the 95% Rule (and Apply It Correctly)
Under the ACA, Applicable Large Employers (those with 50+ full-time employees) must offer Minimum Essential Coverage to at least 95% of their full-time staff and dependents.
That means if you employ 200 full-time workers, at least 190 must receive an offer of coverage to avoid a 4980H(a) penalty.
Here’s where many employers slip up:
They miscount variable-hour employees.
They assume seasonal workers don’t count (but some do).
They rely on outdated measurement periods or incomplete data.
Audit protection starts with understanding who qualifies as full-time and ensuring your offer rate stays above 95%.
4. Double-Check Affordability Each Year
The ACA’s affordability threshold changes annually. For 2026, experts expect it to land around 8% of an employee’s household income.
If your lowest-cost self-only plan exceeds that percentage, you could face 4980H(b) penalties—even if you offered coverage.
Use one of the IRS safe harbor methods to check your affordability:
W-2 Safe Harbor – Based on employee’s reported wages.
Rate of Pay Safe Harbor – Based on hourly rate × 130 hours per month.
Federal Poverty Line (FPL) Safe Harbor – Simplest option; uses a fixed income threshold.
EBA’s team regularly helps employers calculate affordability using these methods, so you can ensure your plan stays compliant and audit-proof.
5. Stay on Top of Reporting Deadlines
Even if you offer the right coverage, missing ACA reporting deadlines can trigger penalties.
Key reporting forms and dates:
Form 1095-C: Reports coverage information for each full-time employee.
Form 1094-C: Summary form for the IRS.
Deadlines:
Furnish 1095-C to employees by March 2, 2026.
File electronically with the IRS by April 1, 2026.
Late filings can result in $310 per form in penalties—an expensive mistake that’s easy to avoid with automation or expert support.
What If You Get Audited Anyway?
Even if you do everything right, you might still receive an audit notice. Don’t panic—respond strategically.
Here’s what to do:
Read the letter carefully. Identify which tax year and which employees are in question.
Contact your benefits administrator or ACA partner immediately. They can help you gather documentation and craft your response.
Respond within 30 days. Ignoring the letter won’t make it go away—it will only increase your penalty risk.
Submit documentation clearly. Include payroll records, coverage offers, and proof of affordability calculations.
Keep a copy of everything. Documentation is your best friend if the issue resurfaces.
Employers who work with EBA often find that our data tracking and reporting tools make this process painless—because everything the IRS might ask for is already organized and audit-ready.
How EBA Helps Employers Stay Audit-Ready
EBA was built to help employers navigate ACA compliance without the stress. Our MEC plans and compliance support make it simple to:
Stay compliant year-round with affordable MEC plans that meet ACA standards.
Automate reporting with accurate 1094-C/1095-C data and tracking tools.
Calculate affordability correctly using up-to-date IRS guidance.
Protect your business with expert documentation and audit support.
Educate your team with bilingual materials and compliance resources.
We’ve helped employers across industries avoid penalties, simplify reporting, and pass audits with confidence.
The Bottom Line
ACA audits are increasing—and the IRS is only getting more efficient at finding noncompliance.
But the solution isn’t complicated. By offering compliant Minimum Essential Coverage, maintaining accurate data, and meeting reporting deadlines, you can protect your business from costly penalties and unnecessary stress.
Think of it this way: compliance isn’t just a legal requirement—it’s a business strategy. And it starts with the right partner.
With Essential Benefit Administrators, you can stay compliant, audit-ready, and focused on what you do best—running your business with confidence. Get in touch with us today to get your benefits package in check.