I Am an ALE. What Does That Mean for My Business?

When your business meets the criteria for applicable large employers, you’ll find yourself in a whole new world of compliance considerations. From reporting requirements to potential tax penalties, ALE status can have a big impact on the day-to-day operations of your company.

Has your business recently crossed the ALE threshold? Have you just discovered that your business is considered an applicable large employer? If so, you are likely trying to figure out what the implications of being an ALE are. By now you likely understand that being an ALE comes with specific responsibilities and strict consequences for avoiding or neglecting those responsibilities. So, you’ll want to be sure you know what your primary ALE responsibilities are and how you can effectively manage them.



Article Summary

As an applicable large employer (ALE), you are obligated to offer affordable health coverage to your full-time employees. To ensure compliance, accurately count your full-time employees, provide suitable coverage, and file the necessary IRS forms. This proactive approach will help you avoid tax penalties, maintain a positive reputation, and attract top talent.

Jump to ALE Responsibilities       Jump to Tax Penalty Info

In short, if you are an ALE and you do nothing, you are putting your business at risk financially—not to mention risking your company’s reputation. Following through on your responsibilities as an ALE can save you money, keep you on the IRS’ good side, and even give you a competitive hiring edge. Not only do most employees prefer to get benefits through their employer, but also, most candidates won’t take a job with a company that doesn’t offer them.

Key points

• The ACA requires large employers to offer healthcare coverage
• The IRS enforces this requirement with the 4980H Part A & B penalties
• Offering minimum essential coverage avoids Part A
• Offering a minimum value plan avoids Part A & B
• Minimum value means the health plan covers at least 60% of the total allowed medical expenses
• Affordable means the covered employee’s cost doesn’t exceed 9.02% of their income (2025)

Play or Pay

Obviously, many companies will want to avoid the risk of being penalized, but all employers must decide if offering ACA-compliant coverage is right for their situation. The idea behind employer shared responsibility is that employers contribute in some way to employee healthcare costs. So, whether employers chose to “play” by offering healthcare benefits, or just “pay” the tax penalty, they are sharing responsibility for employee healthcare. 

However, your decision to play or pay should also consider factors like employee loyalty and the impact of employee turnover. Oftentimes offering benefits is the more affordable option between paying for healthcare benefits and paying to constantly recruit and hire new people. 

Bottom line: as an ALE you can avoid being penalized by the IRS by offering your employees healthcare coverage. The better the coverage you offer, the lower your penalty liability will be and the higher your team’s morale will be. Whether or not you make offers of coverage, you have one more crucial ALE responsibility: telling the IRS if you offered coverage, and who you offered it to.

MEC vs. MVP: What's the Difference?

Report to the IRS 

Since ALE status and regulations are enforced by the IRS, you’ll need to report information to the IRS about how your business has or hasn’t complied with ACA guidelines. Like other things on this list of responsibilities, not doing it, or doing it wrong can result in penalties. For 2024, the penalties can range from $60 to $310 per return (IRC Sections 6721 and 6722). 

So, what do you need to do? There are two main forms related to your ALE obligations that you’ll file together: Forms 1094-C and 1095-C.

File Forms 1095-C by March 31

You’ll file a 1095-C form for each full-time employee. This form details what health coverage, if any, you offered to the employee and if it met ACA standards. Basically, this form allows the IRS to verify that you have complied with the ACA’s employer shared responsibility provision—or if you owe a penalty.

You’ll also provide a copy of this form to each employee by January 31^st. Your employees use it to verify coverage, complete their tax returns, or possibly see if they qualify for a premium tax credit. 

File Form 1094-C by March 31

You’ll file one 1094-C form as a cover sheet summarizing the 1095-C forms. This form provides an overview of your full-time employees and how many of them received offers of coverage. This form is meant to give the IRS a clear picture of whether or not you’ve complied with ACA requirements. 

Reporting Tips

You can make the time-consuming process of reporting to the IRS much easier on yourself with a couple strategies. For example, you can integrate your reporting obligations with your payroll system. This way, you will get the most accurate data possible to inform your offers of coverage as well as reporting duties. Not only that, you’ll reduce the likelihood of errors in tracking hours worked and employee status—thus reducing your potential penalty risk.

Additionally, you can work with a benefits administrator who offers compliance support and will almost totally shoulder the burden of managing your reporting obligations. With an expert by your side, preparing and submitting your 1094-C and 1095-C forms will be nearly effortless.

Key points

• Form 1095-C is filed for each full-time employee

• Form 1094-C is an overview form filed with all the 1095-C forms

• Provide employees with 1095-C forms by January 31

• File 1095-C forms and 1094-C form by March 31 (electronic; February 28 paper).

• Integrate reporting with your payroll system

• Get expert compliance assistance from a benefits administrator
  

Adapting to your ALE status

Being an ALE might seem like a lot to handle, especially if this status is new to you. But with the right resources and a little professional help you can successfully navigate your ALE responsibilities with ease. 

Remember, staying ACA-compliant isn’t just about meeting legal obligations and avoiding penalties; it’s also about demonstrating your commitment to your employees' well-being and creating a healthier workplace. So, take a proactive approach, seek expert advice if you need to, and enjoy the benefits of being a responsible ALE.

ALE Resources 

Tools

• Determine your ALE status with Planstin’s simplified ALE calculator.

• Determine your ALE status and penalty liability with the robust IRS ESRP estimator.

• Schedule a free meeting with a Benefit Guide.

Read More

• How to know if you are an ALE

• What is MEC? 

• What is Minimum Value?