The IRS has announced, through a series of questions and answers, that it will begin the process of assessing penalties for violations of the Affordable Care Act’s (“ACA”s) employer shared responsibility provisions for the 2015 calendar year.
Background. Under the ACA, applicable large employers (“ALEs”), which are employers with 50 or more full-time equivalent employees, are subject to one of two penalties if they fail to comply with the ACA’s employer shared responsibility provisions.
The first penalty applies if: (i) an employer fails to offer health care coverage to “substantially all” of its full-time employees; and (ii) a low-income, full-time employee receives a premium tax credit through a Marketplace. In those situations, the employer must pay an annual penalty of $2,000 (adjusted for inflation) multiplied by the number of full-time employees in excess of 30.
The other penalty applies in situations where: (i) an employer offers health care coverage to its full-time employees that is either “unaffordable” or does not provide “minimum value;” and (ii) a low-income, full-time employee receives a premium tax credit through an Exchange. In such situations, the employer must pay an annual penalty of $3,000 (adjusted for inflation) for each full-time employee who receives the premium tax credit. However, this penalty is capped at $2,000 multiplied by the number of full-time employees in excess of 30.
IRS Qs and As. The IRS says it will issue Letter 226J to an ALE if, based on a review of Forms 1094-C and 1095-C, it determines that, for at least one month during 2015, at least one full-time employee was enrolled in a qualified health plan for which a premium tax credit was allowed. In the letter, the IRS will detail the reasons why it believes the penalty should be assessed.
ALEs will have an opportunity to respond to the IRS before any employer shared responsibility liability is assessed and demand for payment is made. Letter 226J will provide instructions on how the ALE should respond in writing, either agreeing with the proposed employer shared responsibility payment or disagreeing with part or all of the proposed amount. The response to Letter 226J will be generally be due within 30 days of the letter’s date.
If, after correspondence between the ALE and the IRS, it is determined that the ALE is liable for an employer shared responsibility payment, the IRS will assess the penalty and issue a notice and demand for payment (i.e., Notice CP 220J). This Notice will include a summary of the employer shared responsibility payment and will reflect payments made, credits applied, and the balance due, if any. The notice will instruct the ALE how to make payment, if any.
The IRS plans to issue Letter 226Js in late 2017.