PEO ACA Reporting Services: Forms 1094-C, 1095-C, and ALE Compliance

Applicable Large Employers (ALEs — 50+ full-time-equivalent employees) must file:

• Form 1095-C for each full-time employee. Individual employee statements showing health coverage offered, covered months, and affordability for each month of the year.
• Form 1094-C (transmittal). Aggregated report sent to IRS showing employer-level totals plus list of 1095-C forms transmitted.

Under co-employment, the PEO typically:

• Generates 1095-C forms for all co-employed full-time employees
• Files 1094-C transmittal with the IRS
• Distributes 1095-C forms to employees by January 31 each year
• Maintains the underlying records (offers of coverage, affordability calculations, covered months) for the 6-year IRS retention requirement

The client typically:

• Maintains ALE-status determination (counts FTE for the look-back measurement period)
• Provides offer-of-coverage data to the PEO each year for the 1095-C lines
• Coordinates with the PEO on any seasonal or variable-hour employee tracking

To be considered "affordable" under ACA, employee contribution for self-only coverage must not exceed 9.12% (2026) of the employee's wages. Three safe harbor calculations are accepted:

• Form W-2 safe harbor. Employee's W-2 wages (Box 1) for the year. Simplest to calculate but only finalized after year-end.
• Rate of pay safe harbor. Hourly rate × 130 hours/month × 9.12%. Calculable in advance, useful for affordability planning.
• Federal poverty line safe harbor. 9.12% of FPL for single individual. Most conservative but lowest contribution requirement.

PEO master plan rates vs employee contributions need to satisfy at least one safe harbor for each FT employee. PEOs should automate this calculation; if you have to do it manually, that's a service gap.

IRS-identified common 1095-C errors:

• Incorrect EIN handling. Under CPEO co-employment, the CPEO's EIN is used for employment tax filings. Some PEOs report 1095-C under the client's EIN, which creates reconciliation issues.
• Line 14 code errors. Offer of coverage codes (1A, 1B, 1E, etc.) require accurate categorization. Mismatched codes are a common audit trigger.
• Affordability calculation errors. Wrong safe harbor applied, miscalculated rates, missing month-by-month variation.
• Variable-hour employee tracking. Look-back measurement period miscalculations can disqualify employees from FT status reporting.
• Late filings. January 31 employee distribution; February 28 (paper) or March 31 (electronic) IRS transmittal. Premium PEOs automate this; budget PEOs sometimes miss it.

Three questions:

1. "Can you show me a redacted 1095-C and 1094-C you filed for a 50+ EE client in the most recent reporting year?"
2. "How does your platform calculate ACA affordability — which safe harbor do you apply, and can the client see the underlying math?"
3. "What happens if the IRS sends a 226-J notice (proposed employer-mandate penalty) to one of your clients?"

The third question separates premium PEOs (who handle 226-J response) from budget PEOs (who deflect it back to the client).