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Under the Affordable Care Act (ACA) taxpayers are required to maintain what is considered “minimum essential coverage” (MEC) health care for themselves, their spouses and dependents, as applicable. Failure to maintain MEC during any month in the year (with limited exceptions) exposes a taxpayer to a “shared responsibility” penalty. Because the tax penalty has the effect of requiring individuals to have health coverage, this aspect of the ACA is commonly referred to as the “individual mandate.”
Additionally, the ACA requires that an Applicable Large Employer (ALE) offer its full-time employees and dependents minimum essential coverage. That coverage must also provide minimum value and be affordable for the full-time employee. If the employer does not meet this responsibility, and a full-time employee receives subsidized coverage from the Marketplace, then the employer may be assessed a penalty. The amount of the penalty will depend on whether the offer of MEC was met (it must be offered to 95 percent of full-time employees and dependents), and whether the coverage offered was affordable minimum value. This penalty is referred to as the “employer mandate.”
The Internal Revenue Service is the agency that is responsible for the enforcement of both mandates.
For individuals who were covered with minimum essential coverage in 2015, coverage providers began providing individuals with a Form 1095-B or 1095-C in 2016. This information was also provided to the IRS as assistance with the administration and enforcement of the individual mandate. These forms are required to be provided every year in January as long as the ACA is in effect.
Taxpayers use the information from a Form 1095-B or 1095-C to indicate on their 1040 tax filing whether they and everyone on their returns had health coverage, were exempt from the health coverage requirement, or are making a penalty payment. In response to President Trump’s executive order telling agencies to exercise authority and discretion to reduce potential burdens under the ACA, the IRS accepted 2017 tax returns, regardless of whether the health coverage information was or was not provided. Thus, the tax filing process may have been delayed, but it was not rejected.
In mid-October, the IRS stated that for the 2018 tax filings, electronic taxpayer returns that do not indicate meeting the ACA health coverage requirements or are not paying the penalty will be rejected. If a taxpayer files a paper return, the IRS provides it could suspend processing of the return and delay any taxpayer refund if the filing omits information addressing the individual shared responsibility.
As to the employer mandate, the IRS has confirmed that employers are still subject to the mandate and compliance is expected. There are indications that the IRS will begin mandate enforcement and will begin issuing penalty notices. Take note, “indications” does not mean a confirmed statement from either the IRS or
As a reminder, an ALE’s ACA reporting obligation requires that it must provide its full-time employees a Form 1095-C by Jan. 31 of every year. The employer then files a Form 1094-C with the IRS attaching copies of the 1095-C distributed to employees.
In 2016, the IRS sent letters notifying employers that they may be noncompliant with their ACA reporting obligations. This communication gave employers the opportunity to either file their ACA returns late, or provide further information to the IRS. However, receipt of a letter, or actually not receiving a letter, was not a determination that the employer would, or would not be penalized.
The IRS’ guidance on the collection of information under the individual and employer mandates is a reminder that the Affordable Care Act is still a viable law and requires compliance. The ultimate enforcement
of the ACA mandate provisions by the agency remains to be seen and probably relies on further Administration guidance. In the meantime, employers should continue their ACA compliance strategy in order to avoid possible penalties. If that strategy consisted of not complying with the mandate, then a possible strategy review may need to be considered.