IRS Prepares to Begin Assessing ACA Penalties

The Internal Revenue Service (IRS) has indicated that it will begin sending out notices (Letter 226-J) before the end of 2017 to notify Applicable Large Employers (ALEs) that they may owe penalties under the Affordable Care Act’s employer mandate for 2015.  The IRS refers to these penalties as Employer Shared Responsibility Payments or ESRPs.

Liability for a 2015 ESRP.  ALEs may be liable for a penalty for 2015 if at least one of their full-time employees enrolled in the Exchange and received a subsidy during 2015, and the employer either (i) failed to offer coverage to at least 70% of its full-time employees (Sledge Hammer Penalty), or (ii) offered coverage that was not “affordable” or did not provide minimum value (Tack Hammer Penalty). The penalty determination will be based on information from Forms 1094-C and 1095-C filed by the ALE, information from the Exchanges, and the 2015 individual income tax returns filed by employees.

Responding to the IRS.  Upon receiving Letter 226-J, ALEs will have the opportunity to respond (generally, within 30 days of the date of the letter) before any liability is assessed.  If a response is not timely filed, the IRS will move forward with assessing the penalty and issuing a notice and demand for payment.

Next Steps for Employers.  Employers should take steps now to prepare, so that they can respond promptly if they receive a notice.  This means ensuring that employees know where to direct the notices once received and ensuring their Forms 1094-C and 1095-C filed for 2015 and related data files are readily accessible.

Contact Information.  For more information, please contact Don Mazursky (404.888.8840), Kelly Meyers (404.888.8838), Angela Roberts (404.888.8822), Alex Smith (404.888.8839), or Chandra Burns (404.888.8834).

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