The Affordable Care Act ACA remains on the books, despite potential legislative and/or administrative changes. In a significant new development, the IRS is poised to begin levying penalties on employers, under the ACA’s employer mandate, for 2015. This is important for a number of reasons:
- Regardless of what happens in Washington, the rules for 2015 are not likely to change at this point. So, it is appropriate to anticipate that these 2015 penalties are real.
- The penalties are, potentially, significant. Under the “best-case” scenario, failure to offer affordable coverage can wrack up penalty taxes for 2015 of $260 a month per employee who did not receive an offer of “affordable” coverage and who received a premium tax credit from the federal government. In a less favorable scenario, the tax is based on the product of [$173/month} multiplied by [the number of full-time employees minus 80].
- The penalty tax is nondeductible. In effect, that $173/month (nondeductible) penalty tax can cost you the same as a $284/month deductible expense.
The IRS preparations for imposing these taxes include the following:
- The IRS has created a standardized request letter (Letter 226J). The letter recaps the information submitted to the IRS on Form 1094-C, including a list of employees who (according to the IRS) received a premium tax credit from the federal government and were not offered “affordable” care from the government. In effect, Letter 226J lays out the details of the IRS’ penalty tax calculations.
- The letter also describes the steps an employer should take if the employer disagrees with the tax calculation, including instructions for correcting information on the Letter 226J. The IRS has stated that it will “consider” such corrections and advise employers of their final determinations. No timeframe for the review process has been provided.
The IRS has stated that these letters will be sent out starting in “late 2017.” Well, late 2017 is now. Responses to the Letter 226J are, generally, due 30 days from the date of the Letter 226J.
There are not many actions employers can take in anticipation of receiving the Letter 226J in the mail, but to retrieve your 2015 forms and reach out to your broker or benefits consultant to understand the support they can offer in appealing the IRS’ levy might be helpful.