A recent Information Letter issued by the IRS discusses the employer mandate, also known as the employer shared responsibility payment (ESRP) and questions regarding waiver and hardship payments. In short, the IRS letter clearly stipulates that the Affordable Care Act (ACA) employer mandate penalties will not be waived or reduced.
Applicable Large Employers (ALE)
IRS Code Section 4980H lists penalties for ALEs that do not offer qualified health care coverage. This ESRP is assessed and collected as a tax, but it is levied based on non-compliance with the ACA. ALEs are employers who have a minimum of 50 full-time or full-time equivalent employees in the preceding calendar year.
The Information Letter outlined two situations where an ALE will owe an ESRP.
- When the ALE does not offer minimal essential coverage as defined in the ACA to substantially all of its full-time employees and their dependents. This happens when at least one full-time employee is allowed the Premium Tax Credit.
- When the ALE does offer minimal essential coverage to their employees and the employees’ dependents, but at least one full-time employee was allowed a Premium Tax Credit because the coverage offered by the business does not provide minimum value, is not affordable, or the employee was not offered coverage.
Waivers and Hardship Reductions No Longer Available
While the provision of the ACA that included ESRPs was effective in 2015, many smaller ALEs were offered transition relief. In 2017, an Executive Order signed by President Trump directed the IRS to continue to waive, grant exemptions, defer, and otherwise delay the implementation of and portion of the ACA that imposed a regulatory burden on purchasers of health insurance.
As part of the discussion on how best to comply with this order, the IRS debated whether the ESRP relief would be extended. The IRS determined that the Executive Order did not change any provisions of the ACA legislation as made by Congress and only applied to regulations issued under the ACA. Because the ESRP was created as part of the ACA legislation and not as a regulation, the Executive Order does not apply to the ESRP provision and thus, relief from this provision of the legislation cannot be granted to ALEs.