For those of us who need a refresher on IRS §4980H rules, let’s take a look at who this applies to and how:
The ACA contains requirements for certain employer groups to offer health coverage to their employees. These rules are typically referred to as the employer mandate, or more formally called the employer shared responsibility rules. You might also know this portion of the ACA as the “pay or play rules.”
Code §4980H is the IRS code number that requires applicable large employers (ALEs) to offer coverage to full-time employees and their dependent children. An ALE is defined as those employers who employ 50 or more full-time equivalent employees. A full-time employee is defined as an employee working 30 or more hours per week.
As of the fourth quarter of 2017, IRS Letter 226J is being mailed to employers. Letter 226J is the mechanism that begins the collection process for employers who have failed to meet the §4980H requirements for benefits offered during 2015. Penalty calculations are based on data provided by employers to the IRS on Forms 1094 and 1095. Based on initial reports, many 226J proposed employer assessments are being triggered due to mistakes made in employer reporting, rather than to an actual violation of a §4980H requirement.
There are two different penalties that could apply to ALEs.
• §4980H(a) – Offer coverage to “substantially all” full-time employees.
The so-called “(a) penalty” is based on whether the employer made an offer of coverage to enough of their full-time employees. For 2015, an employer who fails to offer minimum essential coverage (MEC) to 70 percent of all full-time employees (and their dependent children) faces a potential penalty of $173.33/month multiplied by the total number of full-time employees (not counting the first 80). By way of example, take an employer with 200 full-time employees who failed to offer coverage to at least 70 percent of those employees in 2015. The total assessment for that period comes to over $187,000, payable to the IRS within 30 days unless disputed.
• §4980H(b) – Failure to offer affordable minimum value coverage.
The “(b) penalty” applies if an employer fails to make an affordable offer of minimum-value coverage to a full-time employee, and that employee enrolls in individual coverage through a public exchange/marketplace, and qualifies for the premium tax credit (PTC). Just to be clear, “affordable” is defined as a health plan costing no more than 9.69 percent of the employee’s household income. Consider this example of the “b penalty”: two full-time employees are not offered affordable coverage. One receives a PTC for six months, the other for 12 months. The 2015 penalty for this employer comes to $4,680.
What should you do if your business received the IRS 226J letter? Most importantly, you must act quickly. Employers are given 30 days to respond before the IRS initiates collections proceedings. Extensions can be requested by calling the IRS number included on the form. Consider contacting your benefits advisor since that is normally also the firm you rely on for ACA reporting and compliance. Your benefits advisor might have submitted 1094 and 1095 forms on your behalf, and will certainly be familiar enough with letter 226J to help navigate the proceedings.
The annual reporting requirement for 1094 and 1095 forms is the main vehicle for the IRS to determine whether an employer has met or not met the minimum requirements set forth by the ACA.
The IRS has again determined that some employers, insurers and other providers of coverage need additional time to gather and analyze the information to prepare the 2017 Forms 1095-B and 1095-C to be furnished to individuals. Therefore, the IRS recently pushed the deadline back by 30 days, extending the due date from Jan. 31, 2018, to Mar. 2, 2018. Employers and coverage providers are still encouraged to furnish 2017 statements to individuals as soon as they are able.
Employers should remember that there are penalties for non-reporting, no offer of coverage or an offer that doesn’t meet minimum standards. Always consult with your benefits advisor for additional information on the ever-changing landscape of ACA compliance.
– Nelson Aldrich is an insurance broker with WISG Insurance, headquartered in Turlock. He can be reached at [email protected]