The IRS recently updated the FAQs on its website regarding the employer mandate to provide some details on the process it will use to impose penalties for failure to provide coverage to “ACA full-time” employees (those working 30 or more hours per week) in accordance with Section 4980H of the Code (often referred to as the “employer mandate”).
The new FAQs indicate that the IRS expects to start issuing letters regarding liability for the 2015 plan year in late 2017 – which means that the initial letters will likely be sent over the next several weeks. Given that employers will generally have only 30 days to respond to the IRS and dispute any penalties, employers may want to take time now to familiarize themselves with the new process and their opportunities to contest the IRS’s determination or calculations.
1. Initial Letter. The IRS will issue a letter to an employer if it determines that for any month during the year, (a) at least one employee of the employer was enrolled in a plan on the health care exchanges and was allowed a premium tax credit, and (b) the employer did not otherwise qualify for an affordability safe harbor or other relief under the regulations.
The letter (Letter 226J, which can be found here) will include an estimate of the penalties, a list of the relevant employees who received tax credits, a response form and a description of the actions the employer should take if it disagrees with the proposed payments. It will also include a standard ESRP Response form (Form 14764, which can be found here).
2. Employer Response and IRS Acknowledgement. While employers will generally have 30 days to respond to the letter, based on the content of the ESRP Response it appears that the IRS may allow extensions in appropriate circumstances if requested. The IRS will acknowledge the response and may revise the proposed payment.
3. If the employer disagrees with the proposed or revised payment, the employer can request a “pre-assessment conference” with the IRS Office of Appeals. A conference must be requested within 30 days of the date of the IRS’s response letter.
4. Assessment of Payment. If (a) the employer doesn’t respond to either letter, or (b) the IRS determines after correspondence and/or a conference that a payment is owed, the IRS will issue a notice and demand for payment. The FAQs indicate that the notice will include instruction on how to make payment.
The full text of the new FAQs (#55 through #58) is available on the IRS website.
In addition to the new information, FAQs #52 through #54 provide an overview of how the penalties are calculated. For 2015, the annualized penalties are (a) $2,080 per ACA full-time employee for failure to provide coverage to at least 70% of all ACA full-time employees, and (b) $3,120 per ACA full-time employee who does not receive an offer of affordable, minimum value coverage.