Recently it was communicated that there were Internal Revenue Service (IRS) indications of intent to begin enforcement of the Affordable Care Act’s (ACA) “employer mandate.” However, as of Nov. 2, 2017, it’s official. On that date, the IRS issued its proposed assessment letter (Letter 226J) it will use when notifying employers of their potential liability for an employer shared responsibility payment (ESRP). The assessment letter relates to any potential liability for 2015.
Under the ACA’s employer mandate, an Applicable Large Employer (ALE) is required to 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 a premium tax credit for health insurance coverage purchased on the Marketplace, then the employer may be assessed a penalty. Employers have an obligation to report offers of coverage using Forms 1095-C and 1094-C. The IRS uses information from these forms, in conjunction with information from an employee’s tax return, in determining whether an employer has an ESRP liability.
What Employers Need to Know
The employer mandate was effective as of Jan. 1, 2015. However, prior to that date, there were notices and guidelines issued by the regulatory agencies providing delays, clarifications and “transitional relief.” Needless to say, there was considerable confusion for many employers. Below are some issues an employer should consider when it comes to an IRS penalty assessment letter.
• An employer has 30 days to respond. Advise any mail-room employees to be on the lookout for any correspondence from the Department of Treasury, Internal Revenue Service and ensure it is delivered to the appropriate person. Discussions should be held with any affiliated companies or subsidiaries as to how the correspondence will be handled.
• Gather copies of 2015 Forms 1095-C and 1094-C. Initial assessment letters relate to 2015. In order to properly respond, an employer will need to review and compare information in the letter against what the employer filed. Employers should be aware of, and have documentation to support, any application of transition relief (such as non-calendar year plans) or safe harbors. Documentation can include payroll records, waiver forms, enrollment information, variable hour employee designations, and measurement/stability period information. Remember, the assessments may not be correct.
• Assessments are on a month-by-month basis. The responsibility payments are calculated monthly and based on whether the employer failed to offer minimum coverage or the coverage was not affordable. The IRS will include a summary table (Form 14765) with the assessment letter. The summary will list the employees who received a premium tax credit triggering the penalty as well as a monthly break-down of the penalty.
• Response form. Included with the assessment letter will be a response form (Form 14764) an employer uses to respond to the IRS. The form provides an opportunity for the employer to agree or disagree with the assessment. If disagreeing, an employer must also provide a statement, in addition to the response form, outlining its reasons. An employer can also provide additional information supporting its disagreement. However, it is of the utmost importance that the employer respond within the time frame provided by the IRS. Failure to respond results in an automatic penalty assessment.
The IRS has started to enforce the ACA’s employer mandate and is issuing notices to employers who may owe a penalty for 2015. Employers should read the notice carefully as it contains detailed instructions on how to respond and make any required payment. The assessment may not be correct due to multiple reasons, such as an employee receiving an unqualified premium tax credit. An employer disagreeing with the assessment should have documentation supporting its offers of coverage and affordability as well as its reporting information.