Compliance audits are increasing in 2025, leaving many businesses scrambling to ensure accurate and complete reporting. Government agencies like the IRS and the Department of Labor (DOL) have intensified enforcement efforts, particularly around ACA reporting and Form 5500 filings.
With higher penalties for errors and increased use of AI-driven audits, companies must take proactive steps to avoid costly fines. Let’s explore the key reasons behind this rise in audits, the common mistakes that trigger investigations, and how businesses can avoid compliance risks.
Why Compliance Audits Are Increasing in 2025
Stricter Enforcement of ACA and Form 5500 Regulations
The IRS and DOL have increased penalties for non-compliance in 2025, particularly around the Affordable Care Act (ACA) reporting and Form 5500 filings.
- ACA reporting penalties: Businesses that fail to file accurate 1095-C forms can face fines of up to $330 per return for incorrect or late filings.
- Form 5500 violations: Under DOL regulations, plan administrators who fail to submit complete and timely Form 5500 filings risk fines of up to $2,670 per day.
Authority Source: U.S. Department of Labor – Form 5500 Filing Compliance
Increased Use of AI and Data Analytics by Regulators
Regulatory agencies have ramped up AI-driven audits to detect compliance violations more efficiently. These systems can quickly flag:
- Inconsistencies in ACA filings (e.g., mismatched employee hours or incorrect coverage reporting).
- Form 5500 discrepancies, such as inaccurate participant counts or missing plan information.
Employee Complaints and Whistleblower Reports
A growing number of audits originate from employee complaints about benefits compliance issues. Common triggers include:
- Incorrect ACA coverage reporting leads to employees receiving unexpected tax penalties.
- Misclassification of workers who are denied benefits.
- Failure to provide required notices under ERISA and ACA regulations.
Common Compliance Issues That Trigger an Audit
ACA Reporting Mistakes
- Filing inaccurate 1095-C forms, leading to IRS scrutiny.
- Failing to report minimum essential coverage (MEC) correctly.
- Late submissions cause automatic penalties.
Form 5500 Non-Compliance
- Missed deadlines trigger an immediate red flag.
- Incomplete or inaccurate filings lead to extended investigations.
Misclassification of Employees
- Misclassifying employees as independent contractors to avoid ACA or benefits obligations.
- Incorrect worker classifications resulting in backpay and tax penalties.
Failure to Maintain Proper Documentation
- Incomplete health coverage records lead to compliance gaps.
- Missing plan documents and SPD (Summary Plan Descriptions) are required under ERISA.
How to Avoid Costly Compliance Penalties
Conduct Regular Internal Audits
- A self-audit can identify compliance risks before regulators do. Businesses should:
- Review past ACA and Form 5500 filings for accuracy.
- Ensure all benefits plan documents are updated.
Leverage Compliance Technology
- Automating compliance can reduce errors. Tools can help with:
Data accuracy in ACA reporting. - Electronic filing of Form 5500 to meet 2025 digital mandates.
Partner With Compliance Experts
- Working with compliance professionals like BC2 ensures:
Error-free reporting that meets IRS and DOL requirements. - Reduced risk of audits and costly penalties.
Stay Informed on Regulatory Updates
Government regulations change frequently. Staying updated on compliance trends in ACA, Form 5500, and employee benefits is essential to avoid unintentional violations.
Protecting Your Business From Compliance Risks in 2025
With increased audits, stricter penalties, and AI-driven enforcement, businesses must take compliance more seriously than ever. From ACA reporting to Form 5500 filings, staying proactive can save thousands in penalties.
Need expert guidance? Contact BC2 today to ensure your compliance strategy is rock solid for 2025.
