Understanding ACA codes is crucial for businesses that provide health coverage under the Affordable Care Act (ACA). These codes, used on IRS Forms 1095-C and 1094-C, help report employer-sponsored health insurance offerings. If your company is subject to ACA reporting requirements, knowing how to use ACA codes correctly can help you stay compliant and avoid costly penalties.
What Are ACA Codes?
ACA codes are used by Applicable Large Employers (ALEs)—businesses with 50 or more full-time employees—to report health coverage offered to employees. These codes appear in Lines 14, 15, and 16 of Form 1095-C and communicate details about:
- Whether coverage was offered
- The affordability of the plan
- Whether an employee was enrolled in coverage
Using the correct ACA codes ensures accurate reporting and helps the IRS determine if an employer has met its employer mandate obligations.
Why Are ACA Codes Important?
Failing to report ACA codes correctly can result in:
- IRS penalties under Sections 4980H(a) or 4980H(b) for not offering affordable coverage
- Incorrect employee tax filings, leading to potential audits
- Compliance issues that could impact eligibility for ACA tax credits
Properly understanding and applying ACA codes helps businesses avoid financial and legal risks while ensuring employees receive the benefits they are entitled to.
Breakdown of ACA Codes on Form 1095-C
Each section of Form 1095-C requires specific ACA codes to report health coverage details.
Line 14: Offer of Coverage Codes (1-Series)
These codes indicate the type of health coverage an employer offered. Some common codes include:
- 1A – Minimum essential coverage (MEC) providing minimum value (MV) offered to the employee, spouse, and dependents at an affordable rate
- 1E – MEC providing MV offered to the employee and at least MEC offered to spouse and dependents
- 1H – No offer of coverage
Employers must choose the appropriate 1-series code for each employee based on what was available to them during the year.
Line 15: Employee Contribution
This section reports the lowest employee premium cost for self-only coverage under the employer’s plan.
- The affordability threshold for 2024 is 8.39% of household income.
- If the plan exceeds this percentage, it may not meet ACA affordability standards.
Line 16: Safe Harbor and Other Relief Codes (2-Series)
These codes provide additional information about employee eligibility and employer compliance. Key codes include:
- 2F – Employer used the Form W-2 Safe Harbor for affordability determination
- 2G – Employer used the Federal Poverty Line Safe Harbor
- 2H – Employer used the Rate of Pay Safe Harbor
- 2D – Employee was in a waiting period and not yet eligible for coverage
Correctly applying 2-series codes helps protect employers from ACA penalties by demonstrating compliance with affordability requirements.
Common ACA Reporting Mistakes
Even experienced HR and payroll teams can make errors when handling ACA codes. Some of the most frequent mistakes include:
- Using the wrong Line 14 code – Misreporting coverage types can trigger penalties.
- Failing to complete Line 15 when required – If an employee is offered affordable coverage, Line 15 must reflect the lowest cost of self-only coverage.
- Incorrect use of Safe Harbor codes – Choosing the wrong affordability safe harbor (2F, 2G, or 2H) can result in noncompliance.
- Missing deadlines – Employers must submit 1095-C forms to employees by March 1, 2025, and e-file with the IRS by April 1, 2025 (for the 2024 tax year).
How Employers Can Ensure ACA Compliance
To prevent costly errors and stay compliant with ACA reporting requirements, employers should:
- Use HR software – Automated ACA compliance software can simplify tracking and reporting.
- Work with benefits professionals – Consulting ACA compliance experts can help prevent costly penalties.
- Stay updated on IRS regulations – The IRS adjusts affordability thresholds and reporting requirements each year.
By following these best practices, businesses can ensure accurate ACA reporting and avoid unnecessary financial risks.
Final Thoughts
Understanding ACA codes is essential for employers subject to ACA reporting requirements. Using the correct codes on Form 1095-C helps businesses comply with the employer mandate, avoid IRS penalties, and ensure employees receive accurate tax documentation.
