While Congress eliminated the Affordable Care Act’s individual mandate, that doesn’t impact the employer requirements. The IRS is ramping up its efforts to enforce penalties against large employers who do not provide adequate health insurance plans. Employers with 50 or more full-time equivalent employees are required to provide employees and their dependents with “minimum essential” health insurance coverage that is “affordable” or face penalties of around $2,000 per employee. This requirement is known as the “large employer mandate.”
The IRS has been holding off on enforcement of the mandate, but that time is coming to an end. The agency has made it known that employers can expect to hear from them soon. (See Questions 55-58 of the IRS FAQs.) The first enforcement effort will be based on the employer’s compliance status in 2015, so the initial enforcement efforts are retroactive. The IRS will use data reported to the IRS on Forms 1094-C and 1095-C and information on employee coverage from the health insurance exchanges to gauge whether an employer has penalty liability.
Scorecard Drives ACA Policy
Why would Congress eliminate the individual mandate in its tax bill, but leave the large employer penalties in place? It could be that the individual mandate costs the government money while the large employer mandate brings in government revenues. The Congressional Budget Office (CBO) has estimated that penalty payments by large employers will bring in $207 billion over the next 10 years. The individual mandate, on the other hand, costs the federal government money in the form of subsidies for individual health plans. Repealing the individual mandate is estimated to save the feds $388 billion over the next decade, money that will help offset tax cuts such as the reduced corporate tax rate.
Watch for IRS letters
The IRS enforcement effort will begin with Letter 226J notifying the employer that the employer owes an Employer Shared Responsibility Payment (ESRP). An initial calculation of the penalty is included along with an explanation of why the employer is being assessed. The penalties are imposed based on at least one employee seeking a premium tax credit and a certain percentage of employees not being properly covered by the employer’s plan.
Employers have a chance to respond to the letter on Form 14764, ESRP Response. Employers only have 30 days to object. The response deadline will be shown on the letter. Letter 226J will contain the name and contact information of a specific IRS employee that the employer should contact with questions about the letter. The IRS will then respond in writing to an employer’s objection to the proposed penalties. If an employer still disagrees, then the employer can request a conference with the IRS Office of Appeals. Failure to respond or to pay subjects the employer to liens and levy enforcement actions.
How to make payment
If after a response and contact with the IRS, it is determined that the employer liability is correct, the IRS will assess the employer shared responsibility payment and issue a notice and demand for payment, which will explain to the employer how to make payment. Employers will not be required to include the employer shared responsibility payment on any tax return that they file or to make payment before notice and demand for payment
What to do if you get a letter
If your company receives a letter, you should contact your tax adviser at Frazier & Deeter immediately. The clock is ticking on your time to dispute the penalties. Remember, failure to respond on time can make you you’re your ability to challenge the assessment and can trigger liens and levies.