The Internal Revenue Service (IRS) has begun enforcing the Affordable Care Act’s (ACA) employer shared responsibility provisions by sending out noncompliance letters – called a Letter 226J – seeking employer shared responsibility payments from employers that have failed to provide the necessary health coverage to employees under the Act.
In general, ACA requires that an “applicable large employer” (ALE) offer to its full-time employees health coverage that is affordable and provides minimum value or else owe the IRS a shared responsibility payment for any full-time employee who enrolls for that month in a qualified health plan for which the full-time employee receives a premium tax credit. The employer shared responsibility mandate thus only applies to an ALE, which is one that employs on average at least 50 full-time employees on business days during the preceding calendar year. In making this determination of whether the employer is an ALE, both full-time employees (i.e., those who work on average at least 30 hours per week or 130 hours per month) and “full-time equivalent employees” (i.e., the number of non-full-time employees divided by 120) are taken into account.
An employer that receives a Letter 226J has an opportunity to respond to and dispute the IRS’s claims before any liability will be assessed, so a careful review of the letter and an understanding of the law are important in order to properly respond. The Final Rule which outlines the employer shared responsibility mandate and provides helpful guidance on the regulation can be found here.