IRS Continues Ramping Up ACA Compliance Efforts

Despite lawsuits aiming to overturn the Affordable Care Act, the law is still very much in play for large employers who are required to provide health coverage for most of their full-time and full-time-equivalent workers.

The IRS has continued to ramp up enforcement of the ACA’s mandate that large employers provide affordable health coverage to their full-time employees.

For the 2018 plan year, the IRS sent around 90,000 letters seeking to collect approximately $12 billion in employer shared responsibility payments (ESRPs), up from $4.4 billion and 30,000 letters in 2015.

Applicable large employers (ALEs) that fail to comply with the mandate are liable for employer shared responsibility payments, which are essentially a penalty in the guise of a tax.

If the IRS, through a company’s tax filings, concludes that an employer is skirting their responsibility under the law, it will send them Letter 226-J, which is essentially the agency’s first step toward enforcing the ACA mandate and imposing liability for failing to secure coverage for their workers.

But if you are one of the employers who receives this letter, you will need to brace yourself for compliance reporting if you want to prove that you are not in breach of the law. The key to coming out unscathed from this is to have solid evidence of compliance. Such evidence should be shared across departments in your organization.

The ACA large-employer mandate requires that any employer of 50 or more workers (or full-time equivalents) must offer at least 95% of its full-time employees health coverage that is affordable (a percentage of their family income) and provides certain essential benefits as prescribed by the law.

Sometimes the letter has been generated because:

  • An employee made a mistake and claimed a tax credit for the cost of their employer-sponsored health insurance.
  • The IRS thinks you may not be offering enough of your employees’ health coverage.

 

ESRP fines can vary depending on the infraction

  • Failure to offer minimum essential coverage: $2,500 per employee for the 2019 policy year. This penalty applies if in any month in the tax year, the minimum coverage is not offered to at least 95% of a company’s full-time employees (and their dependents), and if at least one full-time employee receives a premium tax credit (PTC) for purchasing coverage through the marketplace.
    How it works: If a company in 2019 has 300 full-time employees, and one of those employees receives a PTC for 12 months, the cost of the penalty would be $675,000.
  • Failure to offer coverage that meets affordability and minimum value: $3,750 per employee in 2019. This penalty is assessed if Internal Revenue Code Section 4980H(a) does not apply for a given month.
  • Failure-to-file penalty: $270 per return in 2019. This applies to employers that do not file correct information returns for 2019.

 

What should you do if you receive Letter 226-J?

You will have to act fast. You have 30 days to develop a comprehensive response to the IRS’s assertion of liability. The IRS will initiate a collection process if you fail to respond on time.

Here’s what health compliance attorneys recommend:

  1. Call the IRS number included on the ESRP Response Form 14764 and request a 30-day extension to respond.
  2. Contact the entity your accounting or law firm (whichever you use to communicate with the IRS).
  3. Contact your benefits agent or the brokerage that you use for your group health plan and for ACA reporting. They can help collect data necessary to respond to the IRS.

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