With the Affordable Care Act still the law of the land, the Internal Revenue Service has issued guidance on how it plans to assess penalties on companies that failed to meet their obligation to provide coverage to employees.
The IRS published guidance in a question-and-answer format regarding how it plans to notify “applicable large employers,” or companies that employed an average of 50 or more full-time employees or equivalents, of any penalties associated with liabilities in 2015. The guidance explains the letter the IRS will send outlining potential liabilities and any response the company may want to offer.
Despite both administrative and Congressional efforts to castrate or overturn the ACA, the reporting and employer shared responsibility provisions of the law remain in place. Companies were obligated beginning in 2015 to offer adequate health coverage to employees and dependents or face penalties for failures. In 2016, companies were required to begin filing information returns that would enable the IRS to determine where companies failed to meet their obligations and should be subject to penalties.
The new IRS guidance says applicable large employers should begin receiving letters “in late 2017” informing them of their potential liability based on reporting regarding 2015. The IRS will determine potential liabilities based on both the information returns companies provided in Forms 1094-C and 1095-C as well as information the IRS has collected separately about full-time employees of the company that were allowed the premium tax credit under the ACA for purchasing insurance through an ACA-related exchange.
The letters companies can expect from the IRS will provide a brief explanation of the employer shared responsibility provisions now contained in the tax code and a payment summary table itemizing the proposed payment by month, indicating the employer’s liability for each month of 2015. The letter will include the information the IRS has assembled on full-time employees of the company who were allowed the premium tax credit, an indication that the company did not provide adequate coverage.
The IRS will include a description of the actions companies should take to respond to the letter if they agree or disagree with the IRS version of the liability, and a description of the action the IRS will take if the company does not respond. The IRS says all employers will have an opportunity to respond to the letter before any assessment or demand for payment is made. The process includes a provision for appeals if the IRS and employer disagree even after the initial exchange of information is completed.