IRS Will Soon Issue Notices of 2015 ACA Penalties

Author: Robert S. Teachout, XpertHR Legal Editor

November 13, 2017

Large employers may soon receive a notice from the IRS if they are liable for an employer shared responsibility payment for calendar year 2015 under the Affordable Care Act (ACA). The IRS updated its guidance on ACA employer shared responsibility provisions on November 9, announcing that it plans to issue penalty notices to Applicable Large Employers (ALEs) deemed out of compliance.

The employer shared responsibility payment is the penalty assessed against an ALE if it does not provide affordable, minimum essential coverage to at least 70 percent of its full-time employees. The provision generally applies:

  • When the employer does not offer minimum essential coverage to all full-time employees and their dependents; or
  • When the employer offers minimal essential coverage that is not considered affordable or does not provide minimum value.

According to a timeline of ACA provisions, 2015 is the first year for which the penalty may apply.

For the 2015 calendar year, the IRS plans to issue a letter informing ALEs of their potential liability for an employer shared responsibility payment, if any, in late 2017. This letter, known as Letter 226J, will provide an employer with the general procedures to use and also will assess the employer's shared responsibility payment.

The IRS will use information reported on Forms 1094-C and 1095-C to determine whether an employer may be liable for an employer shared responsibility payment and the amount of the potential payment. According to the guidance, the IRS will issue Letter 226J to an ALE if it determines that:

  • For at least one month in the year, one or more of the employer's full-time employees was enrolled in a qualified health plan for which a premium tax credit was allowed; and
  • The ALE did not qualify for an affordability safe harbor or other relief for the employee.

Any employer that receives a Letter 226J will have an opportunity to respond to the IRS about the proposed payment, and may request a pre-assessment conference with the IRS Office of Appeals.