The IRS is currently issuing Affordable Care Act (ACA) employer mandate penalties for the 2016 calendar year. The IRS began issuing penalties, formally known as Employer Shared Responsibility Payments (ESRP), last year. The IRS notifies employers of an ESRP through Letter 226-J. Under the ACA, Applicable Large Employers must offer their full-time employees minimum essential health coverage that is both affordable and meets ACA minimum value standards, or face a potential ESRP. An employer may be liable for an ESRP if the IRS determines one or more of the employer’s full-time employees received a premium tax credit for purchasing coverage on the Individual Health Insurance Marketplace or state exchange.
The IRS will determine liability for an ESRP after reviewing the employer’s Form 1095-C and 1094-Cs and employees’ individual income tax returns. Applicable Large Employers must submit their 1094-C and 1095-C forms by February 28, 2019 for employers filing by paper and April 1, 2019 for employers filing electronically. Consistent with the past few years, the IRS has once again issued a notice granting an extension for providing employees a copy of Form 1095-C. In Notice 2018-94, the IRS extended the deadline for giving Form 1095-C to employees from January 31, 2019 to March 4, 2019. Notice 2018-94 also extends transition relief from previous years regarding reporting penalties for employers that can show they made good faith efforts to comply with the 1094 and 1095 reporting requirements. The relief applies to incomplete or incorrect information reported on the forms, but is not available for forms filed late. As a result, employers should be sure to file all IRS forms on time.
Even though employers may not be penalized for mistakes on these forms (assuming they made a good faith effort to comply), we routinely see ESRP letters issued as a result of a mistake on Form 1094-C or 1095-C even though an employer offered compliant health insurance coverage. For example, if an employer does not indicate they offered Minimum Essential Coverage for all 12 months of 2018 in column A, part III of Form 1094-C, they will most likely receive an ESRP assessment even if their 1095-Cs indicate the employer offered coverage. Another common error is incorrectly reporting employees in a stability period. For Form 1095-C purposes, “an employee is a full-time employee for each month of the stability period selected by the [employer] if the employee was employed an average of least 30 hours of service per week with the [employer] during the measurement period preceding that stability period.” Therefore, if an employee is in a stability period for the entire calendar year where the employee is considered part-time, generally no Form 1095-C should be created for that employee.
Upon receiving letter 226-J, employers have 30 days to respond. It is important to address IRS penalty letters as soon as they arrive as this is the only chance employers have to refute the proposed penalty. If an employer does not timely respond, the IRS may finalize the penalty amount. The IRS can grant 30-day extensions for responding to letter 226-J if the employer requests one before the deadline to respond.
If you have questions regarding an ESRP penalty, Forms 1094-C or 1095-C, please contact Caitlin Andersen (952-921-4619 or firstname.lastname@example.org) or any other attorney at Seaton, Peters & Revnew, P.A.