What does ACA reporting software do?
ACA reporting software helps an applicable large employer (ALE), one with 50 or more full-time employees including full-time equivalents, meet its section 6056 reporting duty. It turns payroll, hours and benefits data into Forms 1094-C and 1095-C, then files them with the IRS and furnishes them to employees.
Doing this by hand in spreadsheets is possible, but it is slow and error-prone. The forms need month-by-month codes for every full-time employee, the IRS only accepts electronic files in a set XML format, and a wrong code can trigger a penalty letter years later. Good software does the repetitive work and flags the gaps. It does not make the judgment calls for you.
If you are new to the forms themselves, start with Form 1095-C and the overview of ACA reporting. For how Form 1095-C differs from Form 1095-B, see 1095-B vs. 1095-C.
What must the software handle?
Any ACA reporting software worth buying should cover these eight jobs. If a product skips one, you need another tool or a person to fill the gap.
1. Measuring full-time status
A full-time employee under section 4980H averages at least 30 hours of service a week, or 130 hours a month. Software should support both IRS methods:
- Monthly measurement: counts each employee’s hours month by month.
- Look-back measurement: averages hours over a measurement period, then locks in full-time or part-time status for a stability period. For ongoing employees, the stability period must be at least six consecutive months and no shorter than the measurement period, and the administrative period between them can last up to 90 days. New variable-hour, seasonal and part-time employees get an initial measurement period of 3 to 12 months.
Look-back measurement is where simple payroll reports most often fail. Ask to see how the software tracks overlapping measurement and stability periods, rehires, breaks in service and transfers between entities.
2. Generating codes for lines 14 to 16
Form 1095-C, Part II, reports each full-time employee’s status month by month:
| Line | What it reports | What the software should do |
|---|---|---|
| Line 14 | The offer of coverage (Code Series 1) | Map each plan and tier to the right code, including offers to spouses and dependents |
| Line 15 | The employee required contribution for the lowest-cost self-only coverage that provides minimum value | Pull the right monthly amount, not the amount for the plan the employee chose |
| Line 16 | Safe harbor and relief codes (Code Series 2) | Apply codes such as 2A (not employed), 2B (not full-time), 2C (enrolled) or the affordability safe harbors, in the IRS order of priority |
Line 14 and line 16 have to agree with each other and with your payroll data. Software that only fills in codes from a template, without checking them against hours and enrollment, will produce clean-looking forms with wrong answers.
3. Checking affordability
Coverage is affordable when the employee’s cost for the lowest-cost self-only plan that provides minimum value does not exceed the required contribution percentage. For plan years beginning in 2025 it was 9.02%. For 2026 it is 9.96% (Rev. Proc. 2025-25). Because employers rarely know household income, the software should test each month under the three IRS safe harbors: Form W-2 wages, rate of pay, and the federal poverty line. See the ACA affordability safe harbor for how each works.
The stakes are the section 4980H payments, labeled by year:
| Year | 4980H(a): no offer to at least 95% of full-time employees | 4980H(b): offer is unaffordable or lacks minimum value |
|---|---|---|
| 2025 | $2,900 per full-time employee (minus the first 30) | $4,350 per full-time employee who gets a premium tax credit |
| 2026 | $3,340 per full-time employee (minus the first 30) | $5,010 per full-time employee who gets a premium tax credit |
The 4980H(b) amount for a month can never exceed the 4980H(a) amount the employer would have owed.
4. E-filing through AIR with a TCC
If you file 10 or more information returns in a year, counting Forms W-2, 1099 and others together, you must file Forms 1094-C and 1095-C electronically through the IRS ACA Information Returns (AIR) system. Filing through AIR requires a Transmitter Control Code (TCC), obtained through an IRS e-Services account. You can get your own TCC and transmit yourself, or use a provider that transmits for you under its TCC. Either way, the software must produce XML that passes the current IRS schema and must track each submission’s receipt ID and acknowledgment status.
5. State filings
Several states with their own individual mandates, including California, Massachusetts, New Jersey, Rhode Island and the District of Columbia, require their own coverage reporting with their own deadlines and formats. If you have employees in any of them, confirm the software files there too, or plan for who does.
6. Corrections
When the IRS rejects a file, or you find an error after it is accepted, the software has to handle it. For an accepted Form 1095-C, that means a corrected form marked “CORRECTED” sent with a non-authoritative Form 1094-C, plus a corrected copy to the employee. Ask how the software handles rejected submissions, replacement files and corrections to the authoritative transmittal.
7. The alternative furnishing notice
Under the Paperwork Burden Reduction Act (Pub. L. 118-167) and IRS Notice 2025-15, an employer can stop automatically mailing Forms 1095-C if it posts a clear, conspicuous notice on its website by the furnishing deadline, keeps it posted through October 15, and furnishes a form within 30 days of any request. If you use this option, the software should track requests and the 30-day clock. If you keep mailing, it should handle printing, mailing and electronic delivery consent.
8. Letter 226-J support
The IRS uses Letter 226-J to propose a section 4980H payment, often years after the filing. Under the Employer Reporting Improvement Act (Pub. L. 118-168), you have at least 90 days to respond, and the IRS generally has six years from the return’s due date (or filing date, if later) to assess the payment. The software should keep each year’s data, codes and filed files so you can rebuild the month-by-month picture for the employees named in the letter.
What are the three ways to buy it?
Employers usually choose one of three setups. None is right for everyone.
| Option | How it works | Fits best when | Watch for |
|---|---|---|---|
| Payroll or HRIS module | Your payroll or HR system adds ACA tracking and filing to data it already holds | One payroll system, mostly salaried or steady-hour staff, a fully insured plan | Limited look-back measurement, weak handling of several entities, no Part III data for a self-insured plan |
| Standalone ACA software | A separate ACA tool takes files from payroll, HR and the carrier or TPA, and you run the process | Several payroll systems or entities, many variable-hour employees, an in-house team that wants control | Data feeds you have to build and maintain each year |
| Full-service filing | A vendor, or in some cases your TPA or carrier, prepares, files and furnishes the forms for you | A small HR team, a self-insured plan whose Part III enrollment data sits with the TPA or carrier | You still approve the data and own the result, and scope varies widely |
For self-insured plans, Part III of Form 1095-C lists every covered individual. That data usually lives with your TPA or carrier, not in payroll, so whichever option you choose needs a clean enrollment file from them in time to file.
Questions to ask any vendor.
Use this checklist in demos and contracts. Get the answers in writing.
- Measurement: Do you support both the monthly and look-back measurement methods, including initial periods for new variable-hour employees and rehire rules?
- Data sources: Which payroll, HRIS, carrier and TPA files can you take in, and who builds and fixes the feeds?
- Codes: How do you assign line 14 and line 16 codes, and what checks catch codes that conflict with hours or enrollment?
- Affordability: Which safe harbors do you test, and can you test each month and each employee separately?
- E-filing: Do you transmit under your own TCC, or do we need one? How do you report acknowledgments and rejections back to us?
- States: Which state filings are included, and which cost extra?
- Corrections: What happens when the IRS rejects a file, or when we find an error after filing? Are corrections included?
- Furnishing: Do you support the alternative furnishing notice, print and mail, and electronic delivery with consent tracking?
- Penalty letters: What help do you give with Letter 226-J and other IRS notices, and how many years of data do you keep?
- Updates: How quickly do you apply new forms, schemas, codes and yearly percentages?
- Security: How do you protect Social Security numbers, dates of birth and enrollment data, and will you sign a business associate agreement if you handle plan data?
- Responsibility: What does the contract say about your errors, missed deadlines and the cost of fixing them?
Who stays responsible?
The employer does. The ALE is the filer of record for Forms 1094-C and 1095-C, and it owes any section 4980H payment and any penalty for late or incorrect returns and statements. For returns and statements for tax year 2025, those penalties were $340 per return and $340 per statement, with higher amounts for intentional disregard. Software, a payroll provider, a TPA or a full-service filer can do the work, but none of them takes on that duty.
That is why the review matters more than the tool. Before you file, check the full-time count, look for employees coded as offered coverage who were not, compare line 15 amounts to your rate sheet, and confirm Part III against the TPA or carrier’s enrollment.
Ethos Benefits does not sell ACA reporting software; through our ACA compliance and benefits administration work, we review ACA reporting and coordinate the data between payroll, the carrier or TPA and whoever files.
Key dates for filing season.
For tax year 2025, forms were due to employees by March 2, 2026, and to the IRS by March 2, 2026 on paper or March 31, 2026 electronically. For tax year 2026, the IRS draft instructions set March 2, 2027 for furnishing (or for posting the alternative furnishing notice), and March 1, 2027 on paper or March 31, 2027 electronically for filing. When a deadline falls on a weekend or legal holiday, it moves to the next business day.
Start the process in the fall: confirm your software or vendor, test the data feeds, and fix measurement and enrollment issues before the year closes.