United States: ACA Employer Mandate Assessments Coming

Within the past few weeks, IRS officials have informally indicated that the IRS would begin assessing tax penalties under the Affordable Care Act's (ACA) employer shared responsibility. The IRS has now updated its Questions and Answers on Employer Shared Responsibility Provisions under the Affordable Care Act (see Q&As 55-58) and has issued a form preliminary tax notification letter (Letter 226J). The first round of letters is expected before the end of the year and will relate to the 2015 tax year. Background information and steps employers should take if they receive Letter 226J are provided below.

Background

A key component of the ACA is the employer shared responsibility mandate, which requires applicable large employers (generally those with 50 or more full-time employees and equivalents, determined on a controlled group basis) ("ALEs") to offer minimum essential coverage (MEC) to 95% of their full-time employees. This coverage must also be affordable, based on various affordability safe harbors, and have minimum value. For plan years beginning in 2015, ALEs with 50-99 full-time employees were exempt from the requirement to offer MEC to 95% of their full-time employees, but the MEC offered to full-time employees still had to be affordable and have minimum value. ALEs with 100 or more full-time employees would be deemed to satisfy the employer shared responsibility mandate in 2015 if MEC was offered to 70% of their full-time employees, and that coverage was affordable and had minimum value. All ALEs became subject to the full 95% threshold in plan years beginning in 2016.

Over the past few years, ALEs and other coverage providers have been required to submit information reporting forms to give the IRS the information necessary to determine compliance with the individual and employer shared responsibility mandates. ALEs generally file Forms 1094-C and 1095-C containing information regarding offers of MEC, including whether that MEC was affordable and had minimum value.

Penalties for failure to satisfy the employer shared responsibility mandate can be severe. Under Internal Revenue Code Section 4980H(a), an ALE that fails to offer coverage to 95% of its full-time employees could be assessed a penalty equal to $166.67 (for 2014 and later indexed for inflation, as described below) per full-time employee (less 30 full-time employees) per month if any full-time employee obtains coverage on the Marketplace and receives a premium credit. Under Internal Revenue Code ("Code") Section 4980H(b), an ALE that fails to offer affordable coverage or coverage that has minimum value to any full-time employee could be assessed a penalty equal to $250 (for 2014 and later indexed for inflation, as described below) per month for any full-time employee that obtains coverage on the Marketplace and receives a premium credit. The penalty amounts under the employer shared responsibility mandates are indexed for inflation:

Year 4980H(a) 4980H(b)
2014 (non-enforcement year) $166.67/month $250/month
2015 (transition relief) $173.33/month $260/month
2016 $180/month $270/month
2017 $188.33/month $280/month
2018 $193.33/month $290/month

Preliminary Penalty Notice

Based on statements from the IRS, notices of preliminary penalty determinations will be sent before the end of 2017. ALEs who could be assessed a penalty will receive a Letter 226J which will include general information regarding the employer shared responsibility mandate and assessable penalties, a tabular summary of the penalties being assessed (shown on a monthly basis), an employee list showing each full-time employee triggering a penalty and the Form 1095-C indicator codes attributable to that employee, an employer response form (Form 14764, which as of the date of this blog entry, has not been released), and a description of steps to take if the employer disagrees with the IRS.

An employer will respond using Form 14764 to either agree or disagree with the proposed penalty amount. If an employer indicates its disagreement, the IRS will respond with a Letter 227 (not yet released) describing further actions the employer must take. The Letter 227 will likely explain that an employer must follow the steps set forth in Publication 5 and may request a pre-assessment conference within 30 days of the employer's receipt of the Letter 227. If an employer fails to respond to either Letter 226J or Letter 227, the IRS will formally assess the penalty and issue a notice of demand for payment (Notice CP 220J).

Employer Steps if Penalty Notice Received

Given the severity of penalties that could be assessed under the employer shared responsibility mandate, employers take action immediately upon receiving a Letter 226J. Below are recommended steps to take upon being assessed a penalty:

  1. Utilize counsel experienced with the ACA's employer shared responsibility mandate.
  2. Compile the Form 1095-Cs for each assessable full-time employee listed by the IRS in Letter 226J.
  3. Closely compare the information contained in Letter 226J with the Form 1095-Cs for each assessable full-time employee.
  4. Review other relevant payroll and benefit enrollment as necessary to determine whether each assessable full-time employee listed by the IRS was, in fact, full-time and did not actually receive an offer or MEC or the MEC offered was not affordable or did not have minimum value.
  5. Work with counsel to determine how to respond to the IRS. If the employer disagrees with the assessment, Form 14764 should be submitted explaining the disagreement. Once Letter 227 is received by the employer, a pre-assessment conference should be scheduled to formally appeal the potential assessment.
  6. Prepare all relevant materials and supporting documentation in advance of the pre-assessment conference.
  7. Attend the pre-assessment conference with counsel and await the IRS's determination.

Because transition relief during the 2015 plan year exempted employers with less than 100 full-time employees from the penalty in Code Section 4980H(a) and reduced the penalty threshold to 70% for larger employers, we anticipate that assessments this year will primarily be based on the smaller, individualized penalty set forth in Code Section 4980(b).

ACA Employer Mandate Assessments Coming

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions