Why ALE Status Matters in September
Here's the problem small and mid-sized employers face every fall: by September, most business owners still don't know whether they are an Applicable Large Employer, and many won't find out until penalties arrive months after the filing deadline. ALE status is determined on December 31 of the prior year. Which means you have only nine months' notice before you must file 1095-C forms for every full-time employee—and by September, three of those months are already gone.
If you crossed the threshold into ALE status on December 31, 2025, your 1095-C obligations apply retroactively to January 1, 2026. That means every month of coverage and every offer of health insurance must be tracked and reported, even if you didn't realize you were an ALE until mid-year. Missing the filing deadline carries per-form penalties that multiply quickly across a workforce, and the IRS does not move those deadlines.
Confusion between ALE determination and benefit plan requirements adds another layer of risk. Being an ALE doesn't automatically mean you must offer coverage—it means you must report whether you offered it. That reporting obligation is non-negotiable, and clarity now prevents chaos at year-end.
The 50-Employee Equivalency Test
Before you can determine whether you owe 1095-C forms, you need to know whether your business qualifies as an Applicable Large Employer. The test is numerical: if your company averaged 50 or more full-time employees — counting both full-time staff and the full-time equivalent (FTE) of part-time hours — during the prior calendar year, you're an ALE for the current year. That prior-year average is binding. A business that crossed the threshold in 2024 is an ALE for 2025, even if headcount dropped by February.
Here's how the FTE calculation works. Start by counting every employee who averaged 30 or more hours per week or 130 hours per month. Each of those workers counts as one full-time employee. Next, add up the total monthly hours worked by all part-time employees (anyone under 30 hours per week), then divide by 120. That quotient is your monthly FTE figure. Add the full-time count and the FTE count together for each month, then average those twelve monthly totals. If the result is 50 or higher, you're an ALE.
Worked Example: Seasonal Hires and Part-Time Staff
Imagine a landscaping company with 30 year-round full-time employees. From May through September, the owner hires 25 seasonal workers at 20 hours per week. In those five months, the part-time pool logs 2,000 hours per month (25 workers × 20 hours × 4 weeks), yielding an FTE of 16.67 (2,000 ÷ 120). Total monthly employee count during peak season: 30 full-time + 16.67 FTE = 46.67. For the seven off-season months, the count is 30. The twelve-month average is (5 × 46.67 + 7 × 30) ÷ 12 = 36.9, which falls below 50. This business is not an ALE.
If that same owner had added just five more year-round employees — raising the base to 35 — the average would climb to 41.3 in the off-season and 51.67 in peak months, for an annual average of 45.3. Still under 50. But hire ten more seasonal workers at the same hours, and the peak-season FTE jumps to 25, pushing the monthly total to 60 and the annual average above 50. At that point, 1095-C filing becomes mandatory.
Common Counting Mistakes
Employers often make these errors when calculating FTE:
- Exclude part-time workers entirely, or forget to aggregate hours across multiple part-timers
- Mistake the measurement date — ALE status is determined by the prior calendar year, not by December 31, 2025 headcount
- Misclassify seasonal employees as temporary contractors. Which is an audit trigger
- Fail to count anyone on payroll, regardless of job title or expected tenure
Determining Your 1095-C Filing Obligation
Once you've calculated your full-time equivalent count for 2025, the next step is simple: translate that number into a yes-or-no filing obligation. If your monthly average was 50 or more FTE, you are an Applicable Large Employer for 2026, and you must file Form 1095-C for every employee who worked for you during the calendar year — whether they enrolled in health coverage or not, whether they were full-time or part-time, and regardless of how long they stayed on payroll.
If your FTE average was below 50, you have zero 1095-C filing obligation for 2026. You don't file a single form, and you don't need to track offer-of-coverage codes or affordability calculations. That threshold is the entire decision.
Safe Harbor for Newly Qualifying Employers
Employers who cross the 50-FTE threshold for the first time in 2025 benefit from a transition rule: you are not considered an ALE for 2026 if you stayed below 50 FTE in the prior year and did not intend to maintain that higher headcount. The IRS expects you to evaluate whether the increase was seasonal, temporary, or permanent. If you hire a dozen seasonal workers each summer and drop back below 50 by fall, you may not be an ALE at all. Document your payroll records and consult a tax advisor if your headcount fluctuates near the threshold.
Verifying ALE Status with Payroll Records
Pull a monthly headcount and hours-worked report from your payroll system for all of 2025. Calculate the FTE for each month using the method covered in the previous section, then average those twelve monthly totals. If the result is 50.00 or higher, you are an ALE. If it's 49.99 or lower, you are not. Keep that calculation and the underlying payroll reports on file — the IRS may request them during an audit. And you'll want to show exactly how you arrived at your determination.
1095-C Filing Deadline and Penalties
Once you've determined you meet the ALE threshold, two hard deadlines matter: February 28, 2027 for paper filing and March 31, 2027 for electronic filing. Miss those dates and the IRS assesses a per-form penalty that scales with delay. Forms filed within 30 days of the deadline carry a penalty of $50 per form. File between 31 and August 1, and that rises to $110 per form. After August 1 or if you don't file at all, the penalty reaches $290 per form. For a company that employs 60 people, missing the deadline by two months means a potential exposure of $6,600.
Incomplete or incorrect forms trigger the same penalty structure. The IRS counts a missing taxpayer identification number or an incorrect coverage code as a filing failure, and each defect is assessed separately. That makes pre-submission review essential.
The IRS does recognize reasonable cause as a defense. If a natural disaster, unexpected system failure, or death of a responsible party delayed filing, you can request relief by attaching a signed statement explaining the circumstances and the steps you took to comply. Document everything: the event, when you discovered the issue, and your remediation timeline. Reasonable cause is not automatic, but it has removed penalties when businesses can show they acted in good faith.
Year-End Compliance Checklist
Now that you understand the threshold and the filing obligation, here's a dated, month-by-month checklist to carry you from today through the February 28 and March 31, 2027 deadlines. These milestones keep the work manageable and help you avoid the year-end scramble that trips up many first-time ALE filers.
- September 2026: Confirm ALE status. Pull your payroll reports for the twelve-month measurement period (October 2025 through September 2026). Calculate your average monthly FTE count using the method described earlier. If you reach 50, you're an ALE for 2026 filing purposes. If you're below 50, no 1095-C obligation exists and you can stop here.
- October 2026: Verify FTE count and audit payroll records. Double-check part-time and seasonal worker hours, especially if your count is close to the 50 threshold. Fix any misclassifications or missing hours before November. This is your last chance to correct data while the year is still open.
- November 2026: Notify employees and prepare 1095-C data. If you're an ALE, tell employees they will receive a 1095-C form in January. Begin compiling the data fields required: monthly offer of coverage, employee premium share, and safe harbor codes if applicable. Work with your benefits broker or payroll platform to map this information into the correct form boxes.
- December 2026: Year-end payroll close and reconciliation. Run your final payroll of the year and reconcile all wage, tax, and benefits records. Finalize 1095-C drafts and review them for completeness—blank boxes and incorrect codes are common triggers for IRS penalties.
- January–February 2027: Final form review and filing deadline management. Distribute copies to employees by January 31. Submit 1094-C and all 1095-C forms to the IRS by February 28 if filing on paper or March 31 if filing electronically. Keep copies of every form and the transmittal for at least three years.
Next Steps and Support
You've verified your ALE status, walked through the FTE calculation, and marked the filing deadlines. Now the question becomes: how do you actually execute without errors or last-minute scrambling? For most small and mid-sized employers, the answer lies in involving the right partners and automating the record-keeping that makes audits painless.
If your FTE count puts you at or near the 50-employee threshold, this is the moment to bring in a payroll service or tax advisor. A qualified tax professional can review your FTE calculation, confirm whether you meet safe harbor criteria, and walk you through the 1095-C form line by line before you submit. If the IRS does audit your ALE determination, you will need month-by-month payroll records that show total hours for every employee, benefit eligibility data, and proof of offer-of-coverage for all full-time staff. Those documents are far easier to assemble when your payroll system captures them automatically.
Whether you're a first-time filer or dealing with potential penalties from miscalculations related to ALE status. Having the right systems in place is essential. Whether an employer is an ALE is determined each calendar year. And you need accurate records to support that determination. Information reporting by employers on Form 1094-C and Form 1095-C requires precise data capture throughout the year.
PayDayPuffin Payroll tracks employee hours, calculates FTE for you each pay period, and generates the audit-ready records you need to back up your 1095-C filings. You won't need to export spreadsheets or reconstruct hours from memory in February. See how PayDayPuffin keeps your filings on schedule — and your compliance documentation ready — so year-end stays calm and on track.