by Eric Keller and Roberta Casper Watson
The United States District Court for the Northern District of Texas declared earlier this month that a Department of Health and Human Services (“HHS”) regulation published in 2013 as part of the rulemaking for the Affordable Care Act’s (“ACA”) employer mandate was void and unenforceable.[1] As a result, the court held that the employer who requested the declaration was not liable for excises taxes paid to the Internal Revenue Service (“IRS”) under Section 4980H of the Internal Revenue Code of 1986, as amended (“Code”) and was entitled to a full refund of the taxes.
The practical effect of the court’s potentially earthshaking declaration seems to be that, unless the declaration is overturned on appeal, employers who have paid excise taxes under Code Section 4980H are entitled to a refund of the taxes, assuming the three-year statute of limitations[2] for making a refund claim has not lapsed. Accordingly, employers who have paid such taxes and are within the three-year statute of limitations should consider filing a protective refund request with the IRS, particularly if the amounts are material. And, at a minimum, employers who are in the process of having excise taxes assessed should not pay them or agree to their assessment until there are further developments.
As background, Section 4980H of the Code imposes an excise tax against a “large employer” (an employer who has at least 50 or more full time employees (“FTEs”) and/or full-time employee equivalents) that either does not offer its FTEs minimum essential health coverage or offers its FTEs minimum essential health coverage that is not affordable or does not provide minimum value (as such terms are defined under ACA regulations). The penalties are imposed only if, in either case, at least one FTE “has been certified to the employer under Section 1411 of the Affordable Act” as having enrolled in a qualified health plan on an ACA insurance exchange (“Exchange”) and having received a premium-tax credit for such coverage.[3]
Code Section 4980H itself does not specify who must make the certification to the employer that is a pre-condition to assessing the excise tax. Section 1411 of the ACA calls for the Exchanges to make such determinations. Agencies early on considered the need for the Exchanges and IRS to coordinate to be cumbersome,[4] so HHS, by regulation, assigned that responsibility to the IRS, stating:
As part of its determination of whether an employer has a liability under section 4980H of the Code, the Internal Revenue Service will adopt methods to certify to an employer that one or more employees has enrolled for one or more months during a year in a QHP for which a premium tax credit or cost-sharing reduction is allowed or paid.[5]
The Texas federal court declared that HHS regulation to be void and unenforceable, ruling that Section 1411 of the ACA did not permit HHS to assign to the IRS via its regulation the responsibility for the certification to the employer. While the court acknowledged “that its ruling was not the only possible interpretation of the statutes in question,” it concluded that its ruling “is the best interpretation.”
If you have any questions about this case or how to file a protective refund claim for Section 4980H excise taxes previously paid, please contact Roberta Casper Watson, Eric Keller or the WLG attorney with whom you work.
[1] Faulk Co v. Becerra, 2025 U.S. Dist. LEXIS 68580 *19 (N.D. Tex., Apr. 10).
[2] Code § 6501(a).
[3] If a large employer does not offer minimum essential health coverage to at least 95% of its FTEs, the excise tax is assessed not only for each employee who receives the premium tax credit but also for all of its other FTEs, including those to whom the employer offered such coverage, less the first 30. For 2025, the maximum amount of this excise tax is $2,900 per such FTE. The excise tax imposed when unaffordable or non-minimum value coverage is offered by a large employer is limited the specific FTEs who receive a premium tax credit subsidy. In 2025, the maximum amount of this excise tax is $4,355 per such FTE.
[4] Christopher E. Condeluci and Alden J. Bianchi, Why the IRS May Be Unable to Assess ACA Employer Shared Responsibility Penalties for 2015, Bloomberg Daily Tax Report, January 8, 2018.
[5] 45 CFR § 155.310(i). See also 26 CFR § 54.4980H-1(a)(40), defining a “Section 1411 Certification” as “the certification received as part of the process established by the Secretary of Health and Human Services under which an employee is certified to the employer under section 1411 of the Affordable Care Act as having enrolled for a calendar month in a qualified health plan with respect to which an applicable premium tax credit or cost-sharing reduction is allowed or paid with respect to the employee.”
