Recently, the IRS issued additional FAQs regarding the Employer Shared Responsibility Payment (an assessment under the employer mandate). This is the first real guidance on the process of notification and assessment of any employer mandate penalties. It indicates that the IRS appears ready to move forward with this notification and assessment given the failure of further movement on the repeal or revision of the Affordable Care Act (ACA).
Beginning in 2015, Applicable Large Employers (ALEs) may be subject to an assessable payment (referred to as a “penalty”) if any Full-Time Employee or equivalent (FTE) receives a premium tax-credit (a “subsidy”) to purchase health insurance through the Marketplace. While ALEs are generally defined as employers with 50+ FTEs, the IRS generally excluded ALEs with 50-99 FTEs from penalty assessments for 2015 only, subject to specific rules.
The 2015 Penalties
There are two possible penalties – “A” and “B” – depending on the circumstances of the ALE.
- “A” Penalty – “No Coverage” Penalty — This penalty applies when an ALE does not offer at least 70% of FTEs and their dependent children minimum essential coverage and at least one FTE receives a subsidy in the Marketplace to purchase qualified health plan coverage.
- The penalty is $173.33/month (or $2,080/year) multiplied by the total number of FTEs
- “B” Penalty – “Offer Coverage Penalty” — This penalty applies when an ALE offers at least 70% of FTEs and their dependent children minimum essential coverage but the coverage is not affordable, does not provide minimum value or excludes 30% or fewer FTEs and one (or more) of those FTEs receive a subsidy in the Marketplace. The penalty is the lesser of:
- $260/month (or $3,120/year) multiplied by the total number of FTEs who receive a subsidy; or
- The “A” penalty.
The above rules are somewhat different for years after 2015 and have not yet been addressed by the IRS.
Making a Shared Responsibility Payment
Briefly, the FAQs:
- Describe a new Letter 226J that will be issued to ALEs if the IRS determines at least one FTE was enrolled in a qualified health plan for which a premium tax credit was allowed and the ALE did not offer the FTE affordable, minimum value coverage.
- Provide an opportunity and process for an ALE to follow and respond to Letter 226J before any penalty is assessed and notice and demand for payment is made.
- Establish a specific notification timeframe (generally 30 days from the letter date) that an ALE will have to respond to the IRS. Failure to respond timely may result in the IRS assessing the penalty and issuing a notice and demand for payment with no further opportunity for the ALE to respond.
- Describe Notice CP 220J which will be used as formal notice and demand for payment of a penalty.
- Suggest that, for calendar year 2015, the first Letters 226J will be issued to ALEs in late 2017.
ALEs should consider:
- For now, keeping an eye out for the new Letter 226J in the mail. Be mindful of the timeline to respond.
- Ensuring they have records reflecting offers of coverage to identified FTEs for CY 2015. This will include copies of the Forms 1094-C and 1095-C that they filed. These Forms will be helpful when reviewing any IRS notice in determining whether an assessment is correct.
- Contacting a tax advisor for assistance if they receive the letter and have questions.
For more information, click here for a detailed IRS FAQs on 2015 Employer Penalty Payments flyer or visit the Basi Insurance Compliance and Health Reform Education Center for additional compliance and regulatory information.
This blog is for information purposes only. Basi Insurance Services, Inc. does not provide legal or tax advice.