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Are ACA Penalties Really Happening?

05/14/2018  |  By: Terri Mangrum, Flexible Compensation & Compliance Manager

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It’s true—employers who were required to offer affordable health insurance coverage to their full-time employees in 2015 under the Affordable Care Act but did not are now beginning to experience the alarming consequences from the IRS. Penalty notices from the IRS for the 2015 year in the form of Letter 226J are now showing up in mailboxes and the penalty assessments are staggering.

The Bad News

The penalty is called The Employer Shared Responsibility Payment (ESRP). This penalty is owed, generally, because an employer did not offer minimum essential coverage to at least 70% of their full-time employees, and at least one full-time employee received a premium tax credit for their Healthcare.gov coverage, also known as Marketplace coverage. Although the ESRP may be valid, it is also likely that it is not due to an array of reasons. The IRS is assessing the penalty based on the information provided on the Forms 1094-C and 1095-C, as well as information provided by individuals during their Healthcare.gov enrollment.

For example, a person may receive the premium tax credit for their Marketplace coverage, even though they were offered affordable coverage from their employer. When an individual completes an application for Marketplace coverage, they are asked if they were offered employer-provided coverage, and the answer given may be no. Although there is the possibility that the enrollee will need to provide further information supporting the information entered on the application, there is also the possibility that the application is accepted and a premium tax credit is granted.

It is also very likely that an employer could be assessed an ESRP because their forms 1095-C and 1094-C were prepared incorrectly, leading the IRS to believe that such coverage was not offered. The ERSP assessed can be as much as $100,000 or more for an employer with 100 employees, if one employee receives a Marketplace premium tax credit. It is up to the employer of disprove the validity of the ESRP with the IRS.

The Good News

When an employer receives the dreaded Letter 226J, they have approximately 30 days to respond and present a defense as to why they disagree with the ESRP. This is done by providing any corrections to applicable forms 1095-C and 1094-C, documentation supporting the offer and enrollment of coverage, payroll records to prove affordability, and a signed statement explaining corrections and disagreement. It is very important to adhere to the response date on Letter 226J and to follow the instructions completely.

Even Better News

LBMC Employment Partners can assist with the IRS Letter 226J. We can help identify any corrections or transition relief not taken, gather the necessary documents, and draft a thorough response to the IRS. We can also help get employers on track with their future ACA complianceContact us today to learn more!