The IRS has been sending penalty notices to more than 30,000 businesses nationwide, advising them that they may be out of compliance with the Affordable Care Act employer mandate. The tax agency said those employers are on the hook for a total of roughly $4.3 billion in fines.
While the individual mandate has been repealed starting in 2019, the employer mandate is intact and the IRS is pursuing penalties aggressively.
Under the ACA, companies with more than 50 full-time employees are required to extend health insurance to their workers. Failure to do so can result in penalties as high as $2,000 per worker.
As the IRS steps up its efforts to pursue companies that fail to comply with the employer mandate, a report in the New York Times indicates that many of the letters that were sent out were for clerical errors that the employer can address in order to avoid the fine.
The Congressional Budget Office predicts the IRS could levy $12 billion in employer mandate violation fines in 2018.
And the IRS is just getting started, as it was delayed in enforcing the employer mandate for the first year it was in effect, 2014, because of delays in reporting and the Treasury Department clarifying the requirements.
That means the first round of penalty notices that are being sent out now are only for the 2015 tax year. Once it’s done sending those out, pundits say that the IRS will quickly start sending out penalty notifications for 2016 and 2017.
The New York Times reported that the IRS is working with some businesses that experienced technical or paperwork issues to help them avoid fines. E. Neil Trautwein, vice president at the National Retail Federation, told the newspaper that some employers are receiving notifications because they checked the wrong box on their 1094-C forms.
Employee benefits attorney John D. Arendshorst told the paper that the government has shown a willingness to reduce penalties when appropriate. He cited one case where a business with some 500 employees had been notified that it faced a $1.9 million fine, which was eventually reduced to $20,000 because the penalty had been caused by a computer error.
If you get a letter
When notifying an employer of a fine, the IRS uses Letter 226-J. The most likely cause of incorrect assessments is errors in Forms 1094-C and 1095-C.
If you receive a letter, consulting firm Towers Watson recommends that you:
- Respond within 30 days or request an extension. Unless the IRS receives a response within 30 days, the agency will assume that its facts and penalty amount are correct. Employers can request an extension by calling the phone number at the top of the Employer Shared Responsibility Payment (ESRP) Response form. The IRS typically grants these requests.
- Analyze the letter for accuracy. Review all documents you filed with the IRS and provided to employees to ensure that the information on them is correct and that they match the information in the IRS letter. The review should include the following:
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- Ensure that all employees listed in the letter as receiving a premium tax credit were common-law employees.
- Check whether any employees listed as having received a premium tax credit were enrolled in your health plan.
- Check whether you offered health coverage to employees who were not enrolled in the health plan and who received a premium tax credit.
- Verify that all employees listed as receiving a premium tax credit were full-time staff.
- Decide whether to challenge the assessment. If you feel there is a discrepancy between your numbers and those provided by the IRS, you should fill out the ESRP Response form. This filing should include a signed statement explaining the reason(s) for the disagreement and any supporting documentation.