Notwithstanding all the news about repeal and changes to the Affordable Care Act, we are aware that the Internal Revenue Service is enforcing current provisions and assessing penalties.
Enforcement of the 2015 Employer Mandate Penalty
The IRS has announced that it will assess employer mandate penalties for the 2015 tax year. Employers who had 100 or more full time employees (including full time equivalents) in 2014 and did not offer coverage to 70% of their full time employees in 2015 are subject to a penalty. The penalty applies if even one full time employee received a premium tax credit through the Exchange and employer coverage was not offered. The 2015 penalty is $2080 times the total number of full time employees (minus 80).
Currently, the penalty applies to employers with 50 or more full time employees, including full time equivalents. If coverage is not offered to 95% of full time employees and at least one employee receives a premium tax credit through the Exchange, the penalty applies. The penalty for 2017 is $2260.
Employers also can be subject to a penalty even when coverage is offered. The IRS penalizes employers for not offering affordable, minimum value coverage, if the employee received a premium tax credit through the Exchange. There are safe harbors for determining affordability. The most commonly used one is the W-2 safe harbor, where the cost to the employee for self-only coverage is no more than 9.56% of W-2 income. (This number is indexed for 2017.) The penalty for this violation for 2015 is $3120 for each employee ($3390 for 2017).
How Are These Penalties Assessed?
These assessments result from IRS review of Forms 1095-C filed by employers for each full time employee against the records of employees who claimed a premium tax credit. Employers who receive what the IRS has labeled as Letter 226J must respond, typically within a 30 day period.
We can assist you in responding to the IRS. Ignoring the letter will lead to the assessment of the tax.