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AI-enabled smart glasses – which combine eyewear with real-time audio, video, and AI functionality – are now entering the workplace. They provide productivity and accessibility benefits by allowing users to capture information, receive prompts, and interact with AI systems hands-free. But they also introduce legal risks that your existing policies and regulatory frameworks were likely not designed to address. As adoption increases, you should evaluate whether your existing workplace rules and compliance frameworks are equipped to manage the legal, privacy, and operational implications of AI-enabled eyewear. The following Insight provides answers to common questions employers are asking as AI glasses enter the workplace.
Do AI Wearables Raise Workplace Recording Concerns?
Yes – and in many cases, the risks are more significant than employers initially realize.
Unlike smartphones, AI-enabled glasses may:
In many instances, smart glasses are indistinguishable from ordinary eyewear, making it difficult for managers or coworkers to determine whether recording is occurring. This creates enforcement challenges and potential compliance exposure if workplace communications are captured without authorization.
The risk is heightened by state recording laws, which vary across jurisdictions. Eleven states require all-party consent before conversations may be recorded. If an employee uses AI glasses to record workplace discussions without proper consent, the employer may face legal exposure, particularly where confidential internal meetings or customer-facing interactions are captured. Even if the employer did not direct or approve the recording, a lack of clear policies or enforcement protocols may complicate response efforts and increase litigation risk.
Do Restrictions on AI Glasses Raise NLRA Concerns?
Not necessarily.
Section 7 of the National Labor Relations Act (NLRA) protects employees’ rights to engage in concerted activity concerning wages, hours, and working conditions. AI smart glasses, by their nature, typically include the ability to record audio and video, take photographs, and sometimes even stream content in real time. These functions may be analogous to those found in cell phones and other electronic devices previously considered by the National Labor Relations Board (NLRB).
In certain circumstances, recording workplace conditions may qualify as protected activity. This is particularly true where the recording documents safety concerns, harassment, discrimination, or union-related activity, and is undertaken to further a group interest, such as preserving evidence for collective action.
The NLRB 2023 Stericylce standard remains in effect despite recent guidance from the Board’s General Counsel, and it means that labor officials will scrutinize even facially neutral workplace policies that prohibit recording in the workplace. The current standard says that workplace rules are presumptively unlawful if a reasonable employee could interpret them as chilling protected concerted activity under Section 7 of the NLRA. To overcome this presumption, employers have to demonstrate that the rule is narrowly tailored to address a legitimate and substantial business interest such as trade secrets, confidentiality, or customer privacy,
With this in mind, employers should review their policies governing AI glasses to ensure they are narrowly tailored and clearly tied to legitimate business justifications so as not to infringe on employees’ Section 7 rights.
Do AI Glasses Create Data Security Risks?
Quite possibly. Data security risks associated with AI-enabled wearables could be significant and, in some cases, difficult to detect.
AI-enabled glasses could capture proprietary processes, trade secrets, internal communications, and customer or patient data. Since these devices often connect to third-party AI platforms, information may be transmitted, stored, or processed outside the employer’s direct control.
Once data leaves the organization’s internal systems, questions arise regarding retention practices, secondary use, security safeguards, and regulatory compliance. Employers may have limited visibility into how that information is handled, which can create exposure under confidentiality agreements, trade secret laws, and applicable privacy statutes.
Organizations in regulated industries, including healthcare and financial services, should be especially cautious. The inadvertent capture or transmission of protected or confidential information through wearable AI devices may implicate industry-specific privacy and security obligations.
How Do Disability Accommodation Obligations Apply to AI Glasses?
Many AI glasses are designed to look and function like ordinary eyewear and may even contain prescription lenses. While the glasses themselves may provide vision correction, the AI functionality embedded within the device is a separate consideration.
At present, ordinary prescription eyewear does not constitute a disability under the Americans with Disabilities Act (ADA), and employers are not required to permit AI-enabled glasses simply because they include corrective lenses. In other words, presence of prescription lenses does not, by itself, transform the device into a protected accommodation.
However, this may change since wearable AI glasses can function as assistive technology. Emerging AI glasses now can provide real-time transcription, object recognition, navigation assistance, visual magnification, which may be in the future considered workplace accommodations for individuals with visual, auditory, or neurological impairments. As the technology continues to evolve, employers may consider conducting a case-by-case assessment if you identify the possible need or request for an accommodation. This may include evaluating whether the device is medically necessary, whether it addresses a documented limitation, whether there are alternative accommodations available, and whether the use of AI glasses presents safety, confidentiality, or operational concerns.
Can Employers Prohibit AI Glasses in the Workplace?
In most cases, yes.
Employers generally may restrict or prohibit AI-enabled glasses and other wearable devices where the policy supports legitimate business interests. Common justifications include maintaining workplace safety, protecting confidential or proprietary information, safeguarding customer, employee, or patient privacy, and ensuring compliance with applicable recording and data privacy laws.
If an employer decides to implement a ban, consistent enforcement is essential. Any uneven application of the policy may give rise to disparate treatment or retaliation claims.
What Steps Should Employers Take Now?
Given these new slate of risks, many employment law firms recommend you consider the following steps.
1. Review and Consider Updating Applicable Policies
2. Consider Building an Accommodation Framework That Considers AI Glasses
3. Train Managers on AI Glasses and How to Deal With Them
4. Consult Experienced Legal Counsel
Conclusion
We will continue to monitor developments related to AI wearable technology.
Many employers offer popular pre-tax benefits such as health insurance premiums, health FSAs, and dependent care FSAs, assuming that running deductions through payroll on a pre-tax basis is enough. However, one critical component to offering these plans that is often overlooked is that these benefits generally must be offered pursuant to a written Section 125 plan. Often discovered during an audit or transaction, the failure to maintain a written plan document can expose employers to unexpected tax penalties.
A Section 125 plan, commonly referred to as a cafeteria plan or Premium Only Plan (POP), provides employees with the option of purchasing employer-sponsored benefits on a pre-tax basis. These plans allow employees to pick between increased total compensation and contributing part of their compensation towards the payment of benefit premiums. Employees that choose to contribute part of their salary to premiums can do so by making an election. These elections are generally irrevocable during the plan year and a new election cannot be made until the next annual open enrollment period.
Pre-tax salary reductions are only permitted if they are made under a written cafeteria plan. If no written plan exists, or if the document is outdated or inconsistent with actual operations, the IRS may treat all employee contributions as taxable income. A common misconception is that payroll practices or other enrollment materials can substitute for a written plan, however, SPDs, benefit summaries, or other insurance carrier certificates do not replace a Section 125 plan document. The plan must be formally adopted and should clearly spell out:
Offering pre-tax benefits is a valuable tool for both employers and employees, but only when done correctly. We frequently find that employers are not properly handling their pre-tax salary reductions for their benefit plans. Taking the time to confirm a written plan document is in place, up to date, and properly administered can help avoid unnecessary tax penalties. If you have questions or need assistance reviewing your current plan documents, please let us know.
The Department of Labor released a comprehensive AI Literacy Framework providing employers with a roadmap for training workers to use artificial intelligence technology responsibly and effectively. The framework marks the Trump administration’s latest effort to prepare American workers for an AI-driven economy, emphasizing that “every worker will need baseline AI literacy skills to succeed, regardless of industry or occupation.” While the framework doesn’t create any new legal requirements, it signals DOL’s expectations for how employers should approach AI training – and offers practical guidance for organizations looking to upskill their workforce. Here’s an overview and steps you should take.
DOL’s AI Literacy Plan
The framework builds on the Trump Administration’s AI Action Plan released in July 2025. Both prioritize worker training and upskilling. It defines AI literacy as “a foundational set of competencies that enable individuals to use and evaluate AI technologies responsibly, with a primary focus on generative AI.”
Absent from this framework is any discussion of worker protections, discrimination safeguards, or new regulatory requirements. This marks a departure from the Biden administration’s approach, which emphasized AI guardrails alongside worker training.
Foundational Concepts
The DOL framework starts by identifying five core competencies it believes every worker should develop.
1. Understand AI Principles
Workers need to understand how AI operates, not technical mastery, but enough to use AI confidently. This includes understanding that AI identifies statistical patterns (not “thinking”), can produce incorrect outputs (“hallucinations”), and reflects human design decisions.
2. Explore AI Uses
Workers should understand practical applications across workplace settings: using AI to draft documents, analyze reports, answer questions, generate creative assets, or support decision-making. DOL emphasizes that AI use varies by industry and context.
3. Direct AI Effectively
Because AI depends heavily on user input, workers must learn how to provide clear instructions, include necessary context, and iterate to improve results. This includes prompt techniques, supplying relevant data, and avoiding vague requests.
4. Evaluate AI Outputs
Workers need skills to assess whether AI-generated outputs are accurate, complete, and appropriate. This includes verifying facts, spotting logical errors, and applying human judgment rather than treating AI as a final authority.
5. Use AI Responsibly
Workers must understand the boundaries of appropriate use: protecting sensitive information, following workplace policies, avoiding misuse, and maintaining accountability for AI-assisted work.
The 7 Delivery Principles for Employers
The framework also offers seven principles for how employers should deliver AI training.
1. Enable Experiential Learning
Training works best through hands-on use, not abstract reading. Employers should embed AI tools into real work tasks, provide interactive exercises, and allow trial-and-error learning.
2. Embed Learning in Context
Training should be relevant to workers’ jobs and industries. The training should also use industry-specific examples, align with actual workflows, and integrate AI literacy into existing training programs rather than creating standalone courses.
3. Build Complementary Human Skills
The guidance notes that AI amplifies human capabilities, it doesn’t replace them. Training should demonstrate how AI enhances critical thinking, creativity, and communication, emphasizing that AI’s value depends on human judgment.
4. Address Prerequisites to AI Literacy
Some workers may lack digital literacy, device access, or broadband connectivity. Employers should identify and address these barriers, ensuring all employees can engage with training.
5. Create Pathways for Continued Learning
Foundational AI literacy is just the starting point. Employers will want to provide clear routes for workers to deepen skills, pursue specialized training, or transition into AI-related roles.
6. Prepare Leadership to Lead
Train managers, coaches, and team leaders separately. Each leadership position will need skills to guide others, integrate AI into operations, and support workplace adoption.
7. Design for Agility
AI evolves rapidly. Companies should build training systems that can be updated regularly, use modular content that can be refreshed, and incorporate feedback to stay current.
What Employers Should Do Now
Interested in adopting the DOL’s new framework? Here’s where to begin:
Assess Current State of AI Use– Identify where workers are already using AI tools (officially or unofficially). Survey employees about AI adoption, review workflows where AI could add value, and determine which roles need AI literacy most urgently.
Recognize and Address Employee Relations Hurdles to AI Use– Recognize and address any emotional resistance that employees may experience in the face of integration in the workplace linked to fear of job loss, loss of identity, or diminished value. Provide clear communication about how AI is intended to enhance productivity, reduce administrative burden, and support (not replace) human judgment.
Develop or Update AI Training Programs– Use DOL’s framework as a starting point to build training that fits your industry and workforce. Focus on hands-on practice with tools workers will actually use, not abstract AI concepts. Integrate training into existing onboarding and upskilling programs rather than creating standalone courses.
Create Clear AI Use Policies– If you haven’t already, establish guidelines for appropriate AI use in your workplace. Address data protection, output verification requirements, prohibited uses, and accountability standards. Make sure workers understand the boundaries before they encounter problems.
Train Managers and Team Leaders First– Equip leadership with AI literacy before rolling out broader training. They need to understand AI capabilities, guide team adoption, address worker concerns, and model appropriate use. Managers who resist or misunderstand AI will undermine workforce training efforts.
Build Pathways Beyond Basic Literacy– Think about progression: Who needs advanced AI skills? Which roles might evolve significantly due to AI? How can high performers develop deeper AI proficiency? Create clear next steps for workers who master foundational skills.
Partner with External Resources– Consider leveraging state workforce development programs, community colleges, or industry associations for AI training. Many organizations signed the White House pledge to provide free AI education resources. DOL intends to help connect employers with these offerings.
AI-enabled interviewing tools have emerged as a common solution for the administrative burdens associated with hiring. These tools improve efficiency, streamline operations, allow you to consider more candidates without expanding your hiring team, keep evaluations consistent across applicants, and make high-volume hiring easier. But their adoption also raises important legal considerations, including potential bias, compliance risks, and data privacy and cybersecurity obligations – all while we face a growing regulatory and litigation landscape targeting the use of these tools.
5 Steps You Can Take to Mitigate Risks
If your organization uses or is considering AI interview tools, the following five steps can help proactively manage risk.
1. Develop Comprehensive AI Policies. While many organizations rely on a single, high-level AI policy, a more effective governance framework typically includes multiple, complementary policies tailored to different aspects of AI use. At a minimum, you should establish a comprehensive program to address three areas: organizational AI governance, ethical use of AI, and tool-specific acceptable use policies.
2. Ensure Ongoing Vendor Oversight. You should treat AI interview vendors as an extension of the hiring process rather than as standalone technology providers. Managing risk requires clear contractual guardrails, transparency into how tools function, and ongoing monitoring to ensure compliance and fairness.
3. Adopt Measures to Identity and Prevent Deepfakes. Adopting identity verification measures for candidates, particularly in asynchronous interviews, and establishing review protocols to flag irregular or suspicious interview behavior can help mitigate the use of deepfakes. For video interviews in particular, you should implement tools that support human review and train employees to recognize indicators of manipulated or synthetic content.
4. Audit AI Interview Tools and Systems. You should regularly audit AI interview tools to assess whether they rely on signals such as speech patterns, accents, tone, facial expressions, or eye contact, and limit or disable features that may disadvantage candidates with disabilities, neurodivergent traits, or culturally distinct communication styles. You should also ensure that alternative interview formats are available to help prevent qualified candidates from being screened out based on how AI systems interpret communication rather than job-related qualifications.
5. Establish Clear and Balanced Policies on Applicant AI Use. Your approach to applicant use of AI during interviews can present reputational risk if perceived as inconsistent, overly restrictive, or misaligned with the employer’s own use of AI tools. Prohibiting applicant AI use while deploying AI interviewers may be viewed as a double standard, potentially affecting employer brand, candidate trust, and overall recruitment outcomes. Accordingly, you should address applicant use of AI during interviews through transparent, balanced policies rather than blanket prohibitions. This includes clearly communicating what types of AI use are acceptable, such as accessibility tools or interview preparation support, and what uses are not permitted, such as real-time response generation intended to misrepresent a candidate’s abilities.
All OSHA 300A logs must be posted by February 1st in a visible location for employees to read. The logs need to remain posted through April 30th.
Please note the 300 logs must be completed for your records only as well. Be sure to not post the 300 log as it contains employee details.
The 300A log is a summary of all workplace injuries, including COVID cases, and does not contain employee specific details. The 300A log is the only log that should be posted for employee viewing.
Please contact our office if you need a copy of either the OSHA 300 or 300A logs.
A new federal law enacted last year provides a tax benefit to employees who receive overtime pay – but calling it a “No Tax on Overtime” law is a bit of misnomer. For starters, OT pay remains taxable and subject to withholding rules. And while a new income tax deduction may be available to some employees who work overtime, only a limited portion of federally required overtime compensation is tax deductible. We’ll clear up some of the biggest misconceptions surrounding these new rules and provide some key employer takeaways – which will become especially important this tax season and beyond as more employees learn the realities of these rules and the IRS cracks down on employers’ new filing and information reporting obligations.
Overview of “No Tax on Overtime”
The One Big Beautiful Bill Act (OBBBA), which President Trump signed into law last year, includes a new federal income tax deduction related to overtime pay. This new deduction:
The deduction is allowed for both itemizers and non-itemizers, so long as the individual includes their social security number on their tax return. If an individual is married, they must file a joint return in order to claim this deduction.
The Big Question: What Does “Qualified Overtime Compensation” Mean?
The law defines “qualified overtime compensation” as “overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act” (FLSA) that exceeds the individual’s “regular rate” (as determined by the FLSA), excluding qualified tips. This language expressly conditions an employee’s right to claim the federal tax benefit on federal labor law requirements, specifically excluding overtime compensation mandated solely by state law.
Is “No Tax on Overtime” a Misnomer? Top 3 Misconceptions and Employer Challenges
There are plenty of misconceptions floating around related to the implications of the Big Beautiful Bill, especially related to the “No Tax on Overtime” provisions. In order to separate myth from reality, here are three key clarifications on the top mistaken beliefs.
1. The new tax deduction is only available for overtime pay required by the FLSA.
The FLSA generally requires employers to pay covered, nonexempt employees at least 1.5 times their “regular rate” of pay for all hours worked beyond 40 hours in a given workweek. This is very important to keep in mind because some states have overtime laws that overlap with, but also go beyond, the requirements of the FLSA. For example:
Therefore, if an employee receives overtime pay that is required by state, but not federal, law, such amounts are not “qualified overtime compensation” under the OBBBA, and no portion is deductible by the employee for federal income tax purposes.
2. The deductible amount may be less than you think.
As explained above, the new deduction related to overtime pay is capped at $12,500 ($25,000 for joint filers) and is reduced or phased out completely based on an individual’s MAGI for the year. In addition, the amount that is deductible is not the full amount of the individual’s FLSA-required overtime compensation – rather, it is the portion that exceeds the individual’s “regular rate” of pay as determined under federal law.
Here’s an example:
3. All overtime pay remains subject to payroll taxes and withholding rules.
The phrase “No Tax on Overtime” is misleading because it doesn’t actually mean that overtime pay is no longer taxable. To the contrary, all OT pay remains subject to federal income tax (though, as explained above, employees may be eligible to claim a limited income tax deduction for qualified overtime compensation) and therefore subject to income tax withholding rules. However, employees may opt to adjust their Forms W-4 to reflect any expected deductions for qualified overtime compensation.
In addition, all overtime compensation remains fully subject to other payroll taxes, such as Social Security and Medicare taxes (both the employer’s share and the employee’s share), because the OBBBA’s new tax deduction applies only for federal income tax purposes.
Why Should Employers Care About Any of This?
While the OBBBA’s new overtime deduction is a tax benefit for employees filing individual tax returns, it impacts employers in several important ways.
Conclusion
Overtime pay remains taxable – though some employees may be allowed to claim a portion of it as a federal income tax deduction. Employers should work with counsel on filing, reporting, and withholding issues, as well as employee communications, related to qualified overtime compensation.
Article courtesy of Fisher Phillips
We won’t pretend to have a crystal ball when it comes to what will happen in the labor and employment legal landscape in the new year, especially given the nature of modern-day politics. But despite the uncertainty, Fisher & Phillips’ developed their best predictions to help you plan for 2026. You can read the entire FP Workplace Law 2026 Forecast here, or you can dive into this Insight for the top 10 predictions pulled from our report.
Government Relations: DC Will Be Full Speed Ahead Once Again
The second Trump administration has been operating at a breakneck pace and there are no signs of that changing in 2026, especially with control of Congress on the line. The White House is aware that its agenda would face additional roadblocks if Republicans were to lose control of either the House or the Senate, so there will be concerted effort to move forward with the president’s priorities as soon as possible in the new year. This includes confirming judges to benches across the country (and potentially the Supreme Court if Justices Thomas or Alito retires), continued deportation efforts (especially given ICE’s boosted budget), and reducing the size of the federal government.
Immigration: An H-1B Lottery Overhaul is Coming
A growing series of pressures on the H-1B system in 2025 already brought heightened investigations, new fee requirements, intensified employer scrutiny, and a sweeping new social media vetting requirement for H-1B workers and their families.
In 2026, it is predicted that DHS will replace the current random H-1B cap lottery with a weighted selection system that gives higher-wage positions better odds of being chosen, potentially as soon as the March 2026 cap season. Even if litigation slows implementation this coming year, it’s likely to take effect during this administration. The change will heavily favor employers able to offer Level III–IV wages, making it harder for startups, non-profits, and entry-level roles to secure visas. This will force many organizations to rethink compensation strategies and diversify their global talent pipelines.
Artificial Intelligence: Bias Audits Will Become a Must-Have for Employers
Despite a recent executive order targeting “onerous” state AI laws, employers will continue to face a growing patchwork of state and local laws focused on combating AI bias in hiring and the workplace. And an AI bias audit is one of the most effective ways to identify and mitigate risk given the evolving state of AI-related laws springing up around the country. Indeed, plaintiffs’ attorneys are already using the absence of an audit as evidence of negligence or discriminatory design.
Wage and Hour/Pay Equity: State Enforcement to Step Up
States with robust wage and hour and wage payment laws (such as CA, IL, NJ, NY, WA) will continue to aggressively enforce their laws during a period when DOL enforcement activities may decline (in part, due to a reduction in the number of investigators). On the other hand, expect federal enforcement to continue to take a business-friendly approach, and expand the multiple compliance assistance programs it rolled out in 2025.
Fisher & Phillip’s also anticipates a noticeable uptick in pay equity litigation, fueled by well-publicized gender pay settlements and pro-plaintiff decisions in states with robust pay equity statutes. Use the F&P Pay Equity and Transparency Map to track state developments on pay discrimination laws.
Workplace Safety: New Leaders Promise a Business-Friendly Approach
New leadership will mean a new day for employers. Now that David Keeling is in place as the new head of OSHA and Wayne Palmer has been confirmed to lead MSHA, it is expected that efforts to increase outreach to industry will begin. For example, F&P predicts OSHA will issue few, if any, press releases after an employer is cited for safety violations. We also expect fewer regulations to be proposed or promulgated.
Labor Relations: The NLRB Will Begin Dismantling the Biden-Era Board’s Legacy
The Board should finally return to a legal quorum by early 2026. It will likely seek to overturn several significant Biden-era cases in the months thereafter, including rulings that addressed restrictions on workplace conduct rules, remedies available for unfair labor practices, and mandatory captive audience meetings, among other precedent-setting decisions. In response, unions are expected to abandon their reliance on the NLRB. This could mean an increase in labor grievances in union shops. Unions may also revisit recognitional picketing to pressure employers into recognizing them outside the election process.
Sports: Continued Battle Over Student-Athlete “Employee” Status
Both the DOL and NLRB were directed by President Donald Trump to clarify the status of student-athletes as part of a July executive order. While it’s unlikely the Trump administration will be willing to upend the current college sports model by deeming college athletes as employees who have collective bargaining rights and overtime protections, guidance from these agencies on the issue has yet to materialize.
Privacy and Cyber: Wiretapping Litigation Wave Will Keep Churning
In addition to continued proliferation of privacy laws at the state level, we expect the plaintiffs’ bar to continue the wave of wiretapping and related claims against businesses relating to the use of tracking technology on company websites.
While the statutes being used as ammunition in these lawsuits predate the internet, courts are allowing them to move forward across the country, exposing businesses to expensive class action litigation. This trend began primarily in California, but it has already expanded to other states. It is anticipated that it will continue to do so, unless or until state legislatures or courts directly address the application of wiretapping and other long-standing laws (that were intended for other purposes) to the use of tracking technology on websites.
International: Expanded Protections for Non-Traditional Workers
Multinational businesses should prepare for upcoming regulatory changes related to non-traditional workers, including freelancers and gig workers. For example:
Construction: AI Claims, Immigration Enforcement to Increase
As the adoption of drones and AI-driven tools become commonplace, issues around privacy, data protection, off-the-clock work, and workplace surveillance will require contractors to develop clearer policies and disclosures. Additionally, we expect wage-theft enforcement actions to expand in more states, leading to more audits and increasing the importance of compliance and record-keeping.
Increased I-9 audits and ongoing jobsite raids will also require employers to continue to be vigilant about verification and compliance. Fisher Phillips offers a Rapid Response Team for DHS Raids to support employers when an workplace enforcement action occurs at your business.
As employers prepare for the next Affordable Care Act (ACA) reporting cycle, understanding the 2026 deadlines and new compliance options is critical. The IRS has finalized the reporting forms and instructions for the 2025 calendar year, along with updates that simplify the process for Applicable Large Employers (ALEs).
Here’s what employers need to know.
Applicable Large Employers (ALEs) must meet the following ACA reporting deadlines for the 2025 calendar year:
Non-ALEs that sponsor self-insured or level-funded plans face the same deadlines when submitting Forms 1094-B and 1095-B.
Under the ACA, employers are required to report information about health coverage offered to employees:
Reporting is completed through IRS Forms 1094-C and 1095-C (for ALEs) or 1094-B and 1095-B (for non-ALE self-insured plans).
Thanks to the Paperwork Burden Reduction Act (PBRA), ALEs now have a new way to fulfill their reporting obligations without furnishing a Form 1095-C to every full-time employee.
Instead, employers can:
The online notice must:
Example:
A “Tax Information” link on a benefits website leading to a page labeled “IMPORTANT HEALTH COVERAGE TAX DOCUMENTS” with instructions for obtaining the form.
This streamlined furnishing method mirrors an existing option for insurance carriers and non-ALEs reporting via Form 1095-B.
Starting with the 2025 reporting year, the IRS now requires electronic filing for virtually all ACA reports.
Previously, employers filing fewer than 250 forms could submit on paper—but that’s no longer an option.
Under the new aggregation rule, employers that file 10 or more total information returns (including Forms W-2, 1099, and ACA forms) must file electronically through the IRS Affordable Care Act Information Returns (AIR) system.
Because the AIR system requires a specific XML schema format, most employers will need to work with an ACA reporting vendor—such as a payroll provider, benefits administration platform, or specialized ACA reporting service.
Failure to comply with ACA reporting requirements can be costly.
For forms due in 2026, the IRS penalties are as follows:
| Violation | Penalty per Form | Maximum Annual Penalty |
|---|---|---|
| Late or Incorrect Filing or Furnishing | $340 | $4,098,500 |
| Intentional Disregard | $680 per form (no max) | — |
Employers may also qualify for “reasonable cause” relief if they can demonstrate responsible efforts to comply and mitigating circumstances beyond their control (see Treas. Reg. §301.6724-1 and IRS Publication 1586).
To prepare for 2026 ACA reporting:
For 2026, ACA reporting brings both greater convenience and stricter electronic filing rules.
Employers should take advantage of the new online furnishing option while ensuring they’re ready to meet the March deadlines and avoid compliance penalties.
The Patient-Centered Outcomes Research Institute (PCORI) fee established by the Affordable Care Act helps fund research to evaluate and compare health outcomes, clinical effectiveness, risks, and benefits of medical treatment and services. The fee, which is adjusted annually, is currently in place through 2029. In Internal Revenue Bulletin 2025-45, the IRS announced that the PCORI fee for plan years ending between October 1, 2025, and September 30, 2026, is $3.84. As has been the case in previous years, this new fee is an increase from the $3.47 payment for policy or plan years that ended between October 1, 2024, and September 30, 2025.
Employers and plan sponsors with self-funded plans are typically responsible for submitting IRS Form 720 and paying the PCORI fee by July 31 of the calendar year immediately following the last day of the plan year, meaning that payments for plan years that end in 2025 will be due in July of 2026. PCORI fees for self-funded plans are assessed on all covered lives, not just on employees. Plan sponsors can use one of three methods to calculate the average number of covered lives for the fee: the actual count method, the snapshot method, and the Form 5500 method.
Many fully insured employers do not need to take any action, as the insurer will submit the payment on their behalf. However, remember that fully insured employers with self-funded HRAs must pay the fee for each employee covered under the account.
The annual Gag Clause Prohibition Compliance Attestation (GCPCA) required under a transparency provision in the Consolidated Appropriations Act, 2021 (CAA) must be submitted electronically to the Centers for Medicare & Medicaid Services (CMS) by December 31, 2025. Submission information — including FAQs, instructions, a user manual and an Excel spreadsheet for multiple reporting entities — can be accessed on the CMS website.
Group health plan sponsors and health insurance issuers must annually attest that their agreements with healthcare providers, third-party administrators (TPAs) or other service providers do not include a “gag clause.” To meet this requirement, health insurance issuers as well as fully insured and self-insured group health plans — including ERISA plans, non-federal governmental plans and church plans subject to the Internal Revenue Code — must submit an annual GCPCA, with the exception of the following:
Note: It appears that this CAA transparency requirement, like others under the CAA, would not apply to retiree-only plans. For health reimbursement arrangements (HRAs) — including individual coverage HRAs — and other account-based plans, the Departments of Labor, Health and Human Services, and the Treasury are using discretion when it comes to enforcing this requirement until they can exempt these plans through the official rulemaking process.