The IRS recently announced that, by the end of 2017, it will be notifying employers it determines failed to satisfy the employer shared responsibility requirements under the Affordable Care Act for 2015. The IRS recently posted online a new set of FAQs that explain the notification and penalty assessment process. The IRS’ determination of whether an employer owes a penalty is based on the Forms 1095-C and 1094-C filed by employers for 2015.
ACA EMPLOYER SHARED RESPONSIBILITY PAYMENTS
An employer’s failure to satisfy the employer shared responsibility requirements under the Affordable Care Act can result in the employer being assessed with either an “A” penalty or a “B” penalty.
An employer is liable for the “A” penalty if the employer does not offer“minimum essential coverage” to at least 70% (95% in years after 2015) of its “ACA full-time employees” (and their children under 26), and if any ACA full-time employee buys coverage through a state health insurance exchange and receives a premium tax credit. Under the “A” penalty, the employer must pay $167 per month times the number of its ACA full-time employees (minus 80) (minus 30 in years after 2015).
An employer is liable for the “B” penalty for all ACA full-time employees for whom coverage is (i) not offered, (ii) is not “affordable,” or (iii) does not provide “minimum value.” The “B” penalty applies to each ACA full-time employee who buys coverage through a state health insurance exchange and receives a premium tax credit. Under the “B” penalty, the employer must pay $250 per month for each such employee.
Newly issued IRS Q&As 55-58 on the employer shared responsibility provisions of the ACA indicate that the IRS will issue a letter (Letter 226J) to employers whom they have determined owe an “A” or “B” penalty. The letter should include the amount of the proposed penalty (referred to as the Employer Shared Responsibility Payment) the IRS has determined the employer owes. It would not be surprising if the IRS inaccurately identifies certain employers as owing the “A” or “B” penalty.
The IRS has provided specific instructions regarding how an employer can respond if it wants to challenge the proposed penalty. Notably, the IRS is providing only 30 days from the date of the initial letter for employers to respond before the IRS issues a Notice and Demand for payment. Therefore, it is important that an employer who receives a Letter 226J from the IRS attend to it promptly.