Employer Mandate Penalty Notices Are Imminent

The IRS has taken actions indicating that employer mandate penalties under the ACA are about to be enforced. The recently updated Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act includes the section, “Making an Employer Shared Responsibility Payment,” which expands specifically upon the soon-to-be-issued Letter 226J and what that will include.

In Depth

After months of speculation regarding the future of employer shared responsibility under the Affordable Care Act (ACA), the Internal Revenue Service (IRS) has taken action indicating that, at least for the near future, employer mandate penalties are here to stay. The IRS recently updated its Questions and Answers (Q&As) on Employer Shared Responsibility Provisions Under the Affordable Care Act to include Q&As 55-58, “Making an Employer Shared Responsibility Payment.”

These most recent IRS Q&As explain that employer mandate penalties (formally known as employer shared responsibility payments or ESRPs) will be proposed and assessed via Letter 226J. The determination of whether an Applicable Large Employer (ALE) may be liable for an ESRP and the amount of any proposed penalty will be based on the information the ALE reported to the IRS on Forms 1094-C and 1095-C and information from the IRS regarding which full-time employees of the ALE received a premium tax credit. The IRS will begin issuing Letters 226J for the 2015 calendar year in late 2017. Per the IRS website, Letter 226J will include:

  • A brief explanation of section 4980H;
  • An ESRP summary table itemizing the proposed payment by month and indicating for each month if the liability is under Internal Revenue Code (IRC) Section 4980H(a) or 4980H(b) or neither;
  • An explanation of the ESRP summary table;
  • An ESRP response form, Form 14764, “ESRP Response”;
  • An employee PTC list, Form 14765, “Employee Premium Tax Credit (PTC) List” which lists, by month, the ALE’s assessable full-time employees (individuals who for at least one month in the year were full-time employees allowed a premium tax credit and for whom the ALE did not qualify for an affordability safe harbor or other relief (see instructions for Forms 1094-C and 1095-C, Line 16), and any indicator codes the ALE reported on lines 14 and 16 of each assessable full-time employee’s Form 1095-C;
  • A description of the actions the ALE should take if it agrees or disagrees with the proposed ESRP in Letter 226J; and
  • A description of the actions the IRS will take if the ALE does not respond timely to Letter 226J.

ALEs generally will have 30 days within which to respond to Letter 226J before any ESRP is formally assessed and any demand for such payment is made by the IRS. The Letter 226J allows an ALE to submit a statement and supporting documentation that describes why the ALE disagrees with a proposed ESRP. This statement and supporting documentation may include any changes that the ALE would like to make to the information reported on Form(s) 1094-C or Form(s) 1095-C.

After an ALE responds to the Letter 226J, the IRS will send the ALE a description of any further actions the ALE may need to take with respect to any proposed penalty. The ALE will then be given an opportunity to request a “pre-assessment conference” with the IRS Office of Appeals if the ALE still disagrees with the proposed ESRP.

Next Steps for ALEs

Employers should have the Form(s) 1094-C and 1095-C that were filed with the IRS for 2015 easily accessible in anticipation of receiving a Letter 226J, as well as any applicable information regarding the employer’s approach with respect to compliance with IRC Section 4980H(a) and (b). The IRS specifically noted in the model Letter 226J that an ALE should not file a corrected Form(s) 1094-C or Form(s) 1095-C, but should follow the steps noted in Letter 226J to correct any incorrect information within the IRS-indicated response timeframe.

Additionally, the 30-day response window leaves little room for error. Employers should notify their administrative staff that any letters from the IRS should be forwarded immediately to a designated contact in the benefits department.

Megan Mardy D. Finn Pressly Judith Wethall

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Amy Gordon focuses her practice on welfare benefits compliance with the Health Insurance Portability and Accountability Act (HIPAA), the Employee Retirement Income Security Act (ERISA), the Public Health Service Act, the Internal Revenue Code, the Affordable Care Act (ACA), and related federal and state laws and regulations. She regularly advises clients on their self-funded and insured health plans, wellness programs and on-site clinics. She also handles fiduciary issues, including prohibited transactions and other ERISA Title I matters and represents clients before the US Department of Labor, Employee Benefits Security Administration. Amy assists clients in designing and maintaining compliant flexible benefit, life, medical, dental, pharmacy, employee assistance programs (EAP), educational assistance, disability, supplemental health, severance, Health Savings Accounts, Health Reimbursement Accounts and other types of welfare plans. She also consults with clients regarding the design and compliance of wellness programs and initiatives. She has extensive experience with assisting clients who transition their employees and/or retirees to the public and private Marketplace Exchanges. Amy also provides guidance on retiree benefit plans, including Financial Accounting Standards Board (FASB) liability issues and funding options. Previously, Amy served as in-house counsel to Prudential Financial, formerly Prudential Insurance Company of America. She advised Prudential on its current and new products, including long-term and short-term disability, health insurance, life insurance, guaranteed products, individual retirement accounts (IRAs) and pension plan investments. She also represented the company in various fiduciary and prohibited transaction matters. Before that, she worked in the New York Regional Office of the Department of Labor, Employee Benefits Security Administration (EBSA), formerly the Pension and Welfare Benefits Administration (PWBA). During her EBSA tenure, she prepared a number of high-profile civil and criminal litigation actions brought by the Department of Labor and the US Attorney’s office.

Amy Gordon

Amy Gordon focuses her practice on welfare benefits compliance with the Health Insurance Portability and Accountability Act (HIPAA), the Employee Retirement Income Security Act (ERISA), the Public Health Service Act, the Internal Revenue Code, the Affordable Care Act (ACA), and related federal and state laws and regulations. She regularly advises clients on their self-funded and insured health plans, wellness programs and on-site clinics. She also handles fiduciary issues, including prohibited transactions and other ERISA Title I matters and represents clients before the US Department of Labor, Employee Benefits Security Administration.

Amy assists clients in designing and maintaining compliant flexible benefit, life, medical, dental, pharmacy, employee assistance programs (EAP), educational assistance, disability, supplemental health, severance, Health Savings Accounts, Health Reimbursement Accounts and other types of welfare plans. She also consults with clients regarding the design and compliance of wellness programs and initiatives. She has extensive experience with assisting clients who transition their employees and/or retirees to the public and private Marketplace Exchanges.

Amy also provides guidance on retiree benefit plans, including Financial Accounting Standards Board (FASB) liability issues and funding options.

Previously, Amy served as in-house counsel to Prudential Financial, formerly Prudential Insurance Company of America. She advised Prudential on its current and new products, including long-term and short-term disability, health insurance, life insurance, guaranteed products, individual retirement accounts (IRAs) and pension plan investments. She also represented the company in various fiduciary and prohibited transaction matters. Before that, she worked in the New York Regional Office of the Department of Labor, Employee Benefits Security Administration (EBSA), formerly the Pension and Welfare Benefits Administration (PWBA). During her EBSA tenure, she prepared a number of high-profile civil and criminal litigation actions brought by the Department of Labor and the US Attorney’s office.

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