Understanding IRS ACA Penalty Letters and How to Respond in 2025

An employer may receive an ACA penalty letter if their filing is late, missing or inaccurate.

The Affordable Care Act (ACA) requires that certain employers file and furnish ACA forms annually. If they do not meet these requirements, then the IRS may send out a notice to explain what went wrong and what to do next.

This guide summarizes the most common ACA penalty letters and noticed related to ACA reporting and outlines practical steps to respond effectively.

At a Glance: Who Must Report

Employers subject to the Employer Shared Responsibility rules, also known as Applicable Large Employers (ALEs), generally must file Forms 1094-C and 1095-C with the IRS and furnish 1095-C statements to full-time employees each year. These filings help verify that the employer offered minimum essential coverage that was affordable and met minimum value standards.

The Two Broad Categories of IRS Letters

• Warning and information letters: Ask for missing details, clarify filing status, or address processing issues before or after a penalty is proposed.
• Collection and penalty letters: Inform you that a filing was not made, was late, or that an Employer Shared Responsibility Payment (ESRP) may be due.

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Warning and Information Letters

Letter 5699, Missing Information Return Form 1094/1095-C Penalty Letter

Letter 5698

Letter 1865-C, Information Return (Paper) Incomplete or Rejected for Processing

Letter 3064C, or CNOTE

Letter 1948-C, Civil Penalty Explained

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ACA Penalty Letters and Collection Letters

Letter 5005-A, Information Return Penalty Letter

Letter 5005-A is a penalty letter that is sent after IRS Letter 5699 to employers who failed to submit their ACA forms and/or failed to furnish their employee statements.

Notice 972CG, Notice of Proposed Civil Penalty Letter

Penalty Letter 226J, ESRP Preliminary Contact

Collection Letter CP215, Notice and Demand

Collection Letter CP504B

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How to Respond to Any ACA Penalty Letter or Notice

1. Read the entire notice: Note the tax year, response deadline, contact information, requested documents, and the response method.
2. Assemble records: Gather Forms 1094-C and 1095-C, transmission receipts, employee counts, offer-of-coverage documentation, affordability calculations, and payroll or benefits records.
3. Validate identifiers: Confirm your legal name, EIN, address, and the controlled group structure if applicable.
4. Check coding and eligibility: Review 1095-C line 14 to 16 codes, full-time status determinations, measurement methods, waiting periods, and months of coverage offered.
5. Correct errors quickly: File or refile missing or rejected forms, furnish any missing employee copies, and prepare corrected returns as needed.
6. Document reasonable cause: If you seek penalty relief, provide a concise timeline, the facts that caused the noncompliance, and the steps taken to prevent recurrence.
7. Respond by the date shown: Use the reply form or electronic channel described in the letter. Send your package with tracking and keep copies.
8. Arrange payment if required: If you agree with an amount due, follow the payment instructions or request a payment option as permitted.

Common Pitfalls and How to Avoid Them

• Missing filings: Maintain a filing calendar, including IRS deadlines and employee furnishing dates, and assign a backup owner.
• Incorrect EIN or name: Cross check entity details against IRS records and state registrations before filing.
• Rejected electronic submissions: Monitor acknowledgements, resolve error codes promptly, and re-transmit before deadlines when possible.
• Incorrect employee status: Use consistent measurement methods to determine full-time status and keep written procedures.
• Affordability mistakes: Validate monthly rates and wages used for safe harbors and retain your calculations.
• Poor record retention: Store filings, receipts, and correspondence for the recommended retention period and in an organized repository.

Frequently Asked Questions

It is an assessment that may apply to Applicable Large Employers if they did not offer qualifying health coverage to enough full-time employees and at least one full-time employee received a Premium Tax Credit (PTC) for marketplace coverage.

Your deadline is the date printed on your penalty letter or notice. Some notices include a short response window. Read the instructions carefully and contact the IRS at the phone number on the notice if you need clarification.

Penalty relief may be available when you demonstrate reasonable cause and show that you acted in a responsible manner. Provide detailed documentation that explains what happened and the corrective actions you took.

Keep copies of all ACA forms filed, employee statements furnished, transmission receipts, error reports, payroll and benefits records, offer-of-coverage documentation, and all IRS correspondence and responses.

Some states have their own employer reporting requirements in addition to federal rules. Check the rules for the states where you operate and keep separate calendars for state deadlines.

A Simple Response Checklist

• Identify the penalty letter or notice type and tax year.
• Mark the response date on your calendar.
• Assemble filings, receipts, and coverage records.
• Verify entity name and EIN.
• Review 1095-C coding and full-time status determinations.
• Prepare corrections or missing filings if needed.
• Draft a concise response that addresses each IRS point.
• Send the response using the method indicated and save proof of delivery.

Key Takeaway

IRS ACA penalty letters and notices are designed to resolve gaps in reporting and coverage information. Understanding what each notice means, responding with clear documentation, and tightening internal processes can reduce penalties and keep future filings on track.

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