The IRS recently began enforcing the employer mandate provision of the Affordable Care Act (“ACA”) by assessing penalties on noncompliant employers for the 2015 calendar year.
The ACA’s employer mandate provision requires that an applicable large employer (“ALE”) must offer to all full-time employees minimum essential health care coverage that is affordable and provides minimum value. An ALE is defined as an employer with 50 or more full-time equivalent employees.
If (1) an ALE does not comply with the employer mandate provision, and (2) a full-time employee of the ALE receives a premium tax credit to purchase individual coverage through a marketplace, then the ALE may be assessed penalties that are referred to as Employer Shared Responsibility Payments. An ALE may be liable for a “no coverage” penalty if it has failed to offer minimum essential coverage to a sufficient number of full-time employees or an “unaffordability” penalty if it has offered minimum essential coverage but such coverage is not affordable (or does not meet minimum value standards).
The IRS published a form letter (Letter 226J) that is similar to those it has mailed to any ALE that the IRS determines owes payments pursuant to the employer mandate. The letters include the following information:
- an explanation of the applicable employer mandate provisions;
- a table itemizing the proposed penalty by month and whether the liability is under the “no coverage” provision, the “unaffordability” provision or neither;
- a list of employees for whom a payment is due;
- a description of actions that an employer should take if it agrees or disagrees with the proposed penalty;
- a response form;
- a description of the actions that the IRS will take if the ALE does not respond timely; and
- the contact information for the IRS agent who has been designated to answer questions.
The IRS also published Understanding your Letter 226J to help ALEs understand their rights and obligations if they receive Letter 226J.
Any employer that receives Letter 226J should review it carefully with counsel to determine whether there is a basis to pursue an appeal. Responses will be due by the response date that is listed on the form, which will generally be 30 days after the date of the letter.