Second Shoe of ACA Business Penalties Drops

The Internal Revenue Service (IRS) in late 2017 began issuing its first wave of Affordable Care Act (ACA) penalties to companies that failed to provide minimum essential health coverage to at least 70 percent of their employees in 2015.

IRS-sends-out-Obamacare-tax-penalty-noticesNow, the IRS is issuing a new round of penalties for companies that provided coverage but had at least one employee who qualified for a premium tax credit (PTC) because the policy was either not affordable or failed to offer minimum coverage.

The ACA took effect in 2014, but the Obama administration waived penalties on applicable large employers (ALEs) that year, and followed up in 2015 by reducing the coverage requirement to 70 percent of the workforce from the 95 percent written into the ACA’s Employer Shared Responsibility (ESR) provision.

As of June, the IRS had issued more than 30,000 claims totaling some $4.3 billion in penalties, along with an upcoming penalty notification onslaught for 2016 and beyond.

In subsequent years, yet to be assessed by the IRS, the 95-percent standard applies. While the Trump administration and Congress have discussed ending the penalty altogether, no official action has been taken and probably won’t before the November elections.

These ACA coverage penalties are known as Employer Shared Responsibility Payments (ESRPs). When a company is informed by the IRS that a penalty is being assessed, it has 30 days to challenge the ruling. If it fails to do so, the IRS will demand payment within 15 days.

Often, if a company is successful in challenging the penalty based upon percentage of employees covered, the IRS will then move to assess a PTC penalty. Just recently, moreover, it has been issuing PTC penalties even to companies that were never accused of percentage-of-coverage violations.

Regardless of the type of penalty being assessed, the IRS issues what it calls Letter 226J. For a detailed explanation of the various forms the IRS uses for ACA penalties, CLICK HERE.


NOTE: The details in this blog are provided for informational purposes only. All answers are general in nature and do not constitute legal advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The author specifically disclaims any and all liability arising directly or indirectly from the reliance on or use of this blog.
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