November 1, 2017
On November 2, 2017, the IRS updated a Q&A detailing among other things the employer mandate penalty enforcement procedures. This is a further indication that the employer mandate penalties are imminent. For a summary of the employer mandate penalty enforcement procedures please click here.
Last week, the Boston Business Journal, citing unnamed IRS and White House officials, reported that the IRS would be issuing employer mandate penalty notices in November. If the report is true, this would continue the IRS’ more stringent enforcement of the Affordable Care Act (ACA) in 2017 as previously discussed in articles regarding the IRS enforcing each Applicable Large Employer member (ALE member) filing its own Form 1094-C and the IRS requiring the ACA information to be completed on individual tax returns for the 2017 calendar year . This article explores some scenarios as to why the IRS may be contacting an employer with an employer mandate penalty notice.
The Employer Offered No Health Insurance to its Full-Time Employees
If an ALE member did not offer coverage to any of its full-time employees, the ALE member would be subject to a section 4980H(a) penalty for each month a full-time employee received a premium tax credit. This is the worst case scenario as the penalty amount would almost certainly be massive and a penalty notice of this nature may catch the employer off guard. As discussed in our previous article, while an employer’s options at this point would be limited, there are items an ALE member should consider before paying the penalty.
The Employer Offered a Plan that Did Not Provide Minimum Value
Alternatively, the ALE member could be receiving the penalty notice because it did not offer a plan that provided minimum value to some or all of its full-time employees. If an employer’s plan did not provide minimum value, then each full-time employee who received a premium tax credit for a given month would trigger a section 4980H(b) penalty. Unlike the section 4980H(a) penalty which once triggered penalizes the ALE member for each full-time employee, the section 4980H(b) penalty accumulates per full-time employee receiving a premium tax credit. As discussed above and in our previous article, while an employer’s options at this point would be limited, there are several items an ALE member should consider before paying the penalty.
The Employer Offered a Plan that Provided Minimum Value But the Price was Not Affordable
Similar to the minimum value scenario above, the ALE member could be receiving the penalty notice because the minimum value plan offered was not offered at an affordable price to some or all of its full-time employees. If an employer’s plan was not offered at an affordable price, then each full-time employee who received a premium tax credit for a given month would trigger a section 4980H(b) penalty. Particularly with regard to any penalty being assessed on the basis of the coverage not being affordable, there are several items an ALE member should consider before paying the penalty.
The IRS Errored in Issuing the Employer Mandate Penalty Notice
The final scenario, one which I am fearful will be prevalent with the employer mandate penalty notices, is the IRS incorrectly penalized an employer. A penalty notice could be incorrectly sent to an employer for any of the reasons discussed in our previous article as well as a host of other reasons. The IRS will have to factor in the information that the employer submitted on its Forms 1094-C and 1095-C as well as the information regarding an individual’s eligibility for a premium tax credit when determining which employer should be assessed a penalty under section 4980H. Many employers egregiously completed the Forms 1094-C and 1095-C particularly in the first couple years of reporting. If an employer incorrectly entered code combinations on lines 14, 15, and 16 of the Form 1095-C, the employer could be assessed a section 4980H penalty incorrectly.
The fear of incorrect employer mandate penalty notices being sent is only exacerbated by the fact that many individuals received premium tax credits who were not technically eligible for the premium tax credits. It was quite common for an employer to receive a notice from HHS stating that one or more of its employees had received a premium tax credit in 2017. Often times the employee listed on the notice had been offered a plan by the employer that provided minimum value at an affordable price. While an employer’s appeal to HHS was seldom successful, there was virtually no consequence to the employer losing an HHS appeal. The same will not be true if an employer receives an employer mandate penalty notice and loses a subsequent appeal. Unfortunately, no employer was provided a notice from HHS in 2015 so employers are still in the dark as to who received a premium tax credit in 2015.
Inaccurate Form 1094-C and Form 1095-C reporting combined with the government being unable to accurately assess who was eligible for a premium tax credit will undoubtedly lead to some employers being incorrectly assessed an employer mandate penalty. It is imperative that any employer who receives an employer mandate penalty notice carefully review the pertinent documents to see if the penalty was accurately assessed. We would highly recommend contacting a competent attorney who is familiar with the Forms 1094-C and 1095-C as well as the rules pertaining to premium tax credit eligibility should you receive an employer mandate penalty notice.
Any employer who receives an employer mandate penalty notice must act immediately. I would strongly suggest contacting an attorney to assist in the response in hopes of minimizing or eliminating the penalty amount. Taking no action will only exacerbate the situation. The IRS’ recent actions all point to a stringent enforcement of the ACA provisions moving forward. Regardless of whether you receive an employer mandate penalty notice, all employers must take ACA reporting seriously for 2017 and beyond. It is imperative that the 12 month narrative you tell the IRS on the Form 1095-C is accurate. Please contact us if we can assist with your ACA reporting needs.
About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorneys P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.
The information contained on this site is not, nor is it intended to be, legal advice. An attorney should be consulted for advice regarding your situation. Copyright © 2017 by Accord Systems, LLC. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.