May 19, 2026

It is no secret that the Internal Revenue Service (IRS) is no longer treating the Affordable Care Act (ACA) reporting requirements as a courtesy gesture. The lenient enforcement posture of the early years has been replaced by a steady drumbeat of Letters 5699, Notices 972CG, and proposed penalty assessments that arrive in mailboxes long after the affected reporting season has been forgotten by everyone except the IRS. For applicable large employers (ALEs) that outsource the Forms 1094-C and 1095-C filing process to a third-party vendor, this enforcement reality has exposed a quietly devastating fact: the IRS does not care what the vendor told the employer. The IRS cares about what the vendor actually transmitted to the IRS and the only document that proves a transmission was received and accepted is the Receipt ID. The remainder of this publication explains the structure of the ACA double penalty, the time-based tiers under Internal Revenue Code (IRC) sections 6721 and 6722, and why every employer working with a reporting vendor should pick up the phone today and demand the Receipt ID for each reporting year.

The Double Penalty Explained

Many employers are surprised to learn that a single error on a single Form 1095-C can trigger two penalties under two different sections of the Code. IRC section 6721 imposes a penalty for failure to file a correct information return with the IRS. IRC section 6722 imposes a separate penalty for failure to furnish a correct payee statement to the affected employee. The Forms 1094-C and 1095-C are subject to both. Consequently, an employer that fails to file with the IRS and fails to furnish a copy to the employee has not committed one violation; it has committed two. The IRS has taken the position that any employer who fails to file the Forms 1094-C and 1095-C with the IRS has also failed to furnish the Forms 1095-C to the requisite employees. Therefore, one failure automatically becomes two failures.

For the 2025 reporting season, the penalty under each section can be up to $340 per form. When both sections apply, the per-form penalty stacks to $680. For an employer with 200 full-time employees that filed nothing with the IRS and furnished nothing to its employees, the math is unforgiving: 200 forms multiplied by $680 equals a proposed penalty of $136,000 (technically this would be $136,340 for the Form 1094-C that was also not filed with the IRS). Scale that up to 1,000 full-time employees and the proposed penalty climbs to $680,000 (technically this would be $680,340 for the Form 1094-C that was also not filed with the IRS). The sections 6721 and 6722 penalties are subject to annual category caps (currently $4,098,500 for larger employers in 2025), but the caps disappear in cases of intentional disregard, which the IRS may invoke when an employer simply chooses not to file at all.

Timing Matters: The Sections 6721 and 6722 Tier Structure

The full $340-per-form penalty is not automatic on day one. The Code provides a tiered structure that rewards prompt correction. If an employer corrects a section 6721 failure within 30 days of the original due date, the penalty is reduced to $60 per form. If the correction occurs after the 30-day window but on or before August 1 of the filing year, the penalty is $130 per form. If the correction occurs after August 1, or if no correction is made at all, the penalty is the full statutory rate of $340 per form. The same tiered structure applies separately under section 6722 for furnishing failures. The practical implication is straightforward: an employer that discovers a filing failure in April and corrects it prior to April 30 of the filing year is staring down a per-form penalty roughly one-sixth the size of the same failure discovered in September. For an employer with 500 full-time employees, the section 6721 exposure ranges from $30,000 (corrected within 30 days) to $170,000 (after August 1). The cost of waiting is real, and it compounds with employer size. The cost of not knowing is even worse, because an employer that believes its vendor filed has no reason to look for a failure until the Letter 5699 arrives, which is typically well past the August 1 deadline (e.g. the IRS just sent out a wave of penalties for the 2023 reporting year which was due on March 31, 2024).

Notice 972CG and the Vendor Conversation

The Notice 972CG is the vehicle the IRS uses to propose sections 6721 and 6722 penalties. The typical fact pattern is now well-established. The IRS sends a Letter 5699 asking why the employer has not filed its Forms 1094-C and 1095-C for a given reporting year. The employer, often genuinely surprised, investigates and discovers that the filing either did not occur or was not accepted by the IRS. The employer files (late) in response to the Letter 5699. Several months later, the Notice 972CG arrives proposing a penalty for each late form. To avoid a penalty, the employer must, among other items, show there were “significant mitigating factors” or “events beyond the filer’s control,” coupled with evidence that the employer acted in a “responsible manner” both before and after the failure to file occurred.

In far too many of these conversations, the employer’s reasonable-cause story reduces to: “We hired a vendor and we thought the vendor filed.” While that story has been persuasive in the past, the IRS has been providing more pushback recently. Reliance on a third party can be part of a reasonable-cause defense, but the IRS expects the employer to have exercised ordinary business care, which includes some form of verification that the filing actually occurred. The employer, not the vendor, is responsible for the filings of the Forms 1094-C and 1095-C, so the penalties under sections 6721 and 6722 land squarely on the employer.

The Receipt ID: The Only Document That Proves a Filing Occurred

ACA filings to the IRS run through the Affordable Care Act Information Returns (AIR) system. When a transmitter (typically the employer’s vendor) submits a batch of Forms 1094-C and 1095-C to AIR, the system returns a Receipt ID — a unique alphanumeric identifier — confirming that the transmission was received by the IRS. The Receipt ID is the starting point of the verification process, not the end of it. After AIR processes the batch, it returns one of three statuses. “Accepted” means the IRS has accepted the filing as submitted. “Accepted with Errors” means the IRS has accepted the batch but has identified data issues that the employer should correct. “Rejected” means the IRS did not accept the filing and the employer must address the rejection reasons and resubmit until acceptance is achieved.

This last category is where the most painful Notice 972CG conversations originate. A vendor can submit a batch, receive a Receipt ID, and then never communicate to the employer that the batch was ultimately rejected. From the employer’s perspective, the vendor said “we filed.” From the IRS’s perspective, no acceptable filing was ever received. The section 6721 clock continues to run, the August 1 tier passes by unnoticed, and the Notice 972CG arrives many months later proposing the full $340-per-form rate.

An employer that works with a reporting vendor should not accept “we filed for you” as confirmation of filing. The employer should obtain, in writing, for each reporting year, the following items: (1) the Receipt ID assigned by the AIR system for the original submission; (2) the final acceptance status — Accepted, Accepted with Errors, or Rejected; (3) for any “Accepted with Errors” status, a list of the affected employees and a description of the corrections made (note that most employers will be Accepted with Errors because of a mismatch in employee names and the taxpayer identification numbers (TINs), which is a prevalent problem that appears to be caused by the IRS verification process); and (4) for any “Rejected” status, the rejection reasons, along with the Receipt ID of the corrected resubmission that was ultimately Accepted by the IRS.

A vendor that cannot produce a Receipt ID is either the vendor that has not filed or the vendor that cannot prove that it did, and there is no meaningful difference between those two outcomes when the Notice 972CG arrives.

A Modest Suggestion for Every Employer

Every employer that uses a third-party reporting vendor should request, in writing, the Receipt ID and the final acceptance status for every reporting year. The exercise will take an afternoon. The information should already exist in the vendor’s records. If the information does not exist, the employer has discovered a problem at a time when the lower tiers of the sections 6721 and 6722 penalty structure can still be utilized.

ACA reporting was sold to many employers as a problem they could pay someone else to make disappear. Years of Letters 5699 and Notices 972CG, including a recent wave of these letters and notices for the 2023 filing year, have made plain that the problem does not disappear. Rather, it merely waits, accumulating per-form penalties for every month it remains hidden. The Receipt ID is the simplest, cheapest, and most powerful piece of compliance hygiene available to an employer. Ask for it. Verify it. Store it. And ask again next year.

Should you have any questions regarding the ACA double penalty, Notice 972CG, or how to obtain and verify Receipt IDs from a current reporting vendor, please do not hesitate to contact us.

About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.

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