The $143,000 Mistake – The ACA Shared Responsibility Penalty

We recently received an urgent call from one of our clients who had received a notice from the IRS with a request for payment of $143,000 as a penalty for not complying with a key provision of the Affordable Care Act.   We had heard rumors of other employers (not our clients) receiving similar letters with even higher assessments.  The letter to our client is an error.  They are in compliance with the ACA.

So why is this happening?

Despite recent legislation eliminating the individual mandate provision of the Affordable Care Act, there are many employer requirements still in place.  One of the major provisions is the Employer Shared Responsibility (also known as Pay or Play) rules for applicable large employers (ALEs).  An employer is an ALE for a year if it had an average of 50 or more full time employees (including full time equivalents) during the preceding calendar year.

The IRS has recently started to enforce the penalties going back to 2015 on some employers who they have determined are in violation of this provision.  An ALE may be liable for this penalty if they:

  • Did not offer Minimum Essential Coverage (MEC) to 95% of its full time employees (and their dependents) AND at least one of their FT employees was allowed a Premium Tax Credit (PTC)
  • Did offer MEC as required and at least one of their FTEs was allowed a Premium Tax Credit (PTC) because the coverage was unaffordable or did not meet minimum value, or the employee was not offered coverage

This determination is made based on cross referencing the names of individuals who received a PTC with data supplied by employers on the Forms 1094-C and 1095-C that are part of the annual ACA reporting requirement.

What do you do if you receive a demand letter from the IRS?

First of all, avoid the strong urge to panic.  If you are offering health insurance coverage to all of your eligible employees (working 30 or more hours per week), you have probably met the required “minimum value” and “minimum essential coverage” portions of the law.   Whether your plan is “affordable” is dependent on how much an employee would pay for single coverage for your least expensive plan AND which safe harbor provision you selected on your Form 1094-C filing.

A very possible scenario is that a mistake was made on either or both the 1094-C transmittal form and 1095-C.  The coding of the 1095-C form is very confusing.  An error could make it look like you did not offer affordable coverage to an employee and trigger the penalty.  Fortunately the IRS communication includes details on which employees have received a PTC.   This allows you to check their 1095-C forms for errors.

You could also have made a mistake on the 1094-C form.  For instance, Part III, column A is used to confirm whether Minimum Essential Coverage was offered.  Checking the “NO” box would trigger a penalty.

The IRS has a process to submit corrections and dispute the assessment.  Be sure to follow their guidelines and respond within the timeframe allowed.

Finally, call us at (866) 724-0008 or click the link below if you receive this letter.  We would be happy to review it with you and give advice where we can.

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