A Tale of Two Employers
SPECIAL NOTE: The penalized organizations mentioned in this post are NOT clients of ACA-Track™.
IRS penalties for Affordable Care Act non-compliance are beginning to roll in for reporting year 2015.
While most employers are still in the throes of filing IRS forms 1095s for 2017 Affordable Care Act reporting, the IRS is equally busy issuing penalty letters (IRS Letter 226J) from reporting year 2015.
The IRS penalties are real and substantial, and organizations that thought their “good faith” efforts for 2015 were sufficient are beginning to realize otherwise.
Non-profit Penalized $80,000
One case in point is a non-profit entity with approximately 80 full-time employees. This employer recently received a Letter 226J, otherwise know as an Affordable Care Act penalty letter, stating their Employer Shared Responsibility Payment (ERSP) is $80,000. According to the IRS letter, the ERSP or penalty was being applied due to the following:
“You did not offer minimum essential coverage (MEC) to at least 70% of your full-time employees (and their dependents) and at least one of your full-time employees was certified as being allowed the PTC [Premium Tax Credit]; or…You offered MEC to at least 70% of your full-time employees (and their dependents), but at least one of your full-time employees was certified as being allowed the PTC (because the coverage was unaffordable or did not provide minimum value, or the full-time employee was not offered coverage.)”
Basically what that means is one or more of this organization’s employees accessed the state’s health insurance marketplace and applied for and received a government subsidy for health insurance.
That subsidy no doubt flagged this employer as either 1) not having made an offer of health insurance to that employee or 2) not offering that employee a healthcare plan with minimum essential coverage that was affordable.
School District Faces $1.2 Million Penalty
Another case in point is a K-12 district with approximately 1,000 employees that also recently received a Letter 226J. Their letter, however, stated the school district’s ERSP (penalty) is nearly $1.2 million. Yes, $1.2 million! That’s a staggering amount for any employer, much less a K-12 district that serves a population of less than 23,000.
The claim for these IRS penalties stemmed from the same situation as the 80-employee non-profit, with the IRS claiming failure to make an offer or provide MEC which was affordable to a qualified employee who received a subsidy.
What to Do If You Receive a Letter 226J
Employers have 30 days to respond to a Letter 226J, which is a very short amount of time for gathering the data required to counter the non-compliance – especially if the employer does not have a process in place.
Most employers will need to pull related data from multiple, and often disparate systems such as payroll, time and attendance, benefits and human resources (for start dates, end dates, average number of hours worked, etc.).
Depending on the penalty, non-compliant employers should consider retaining a specialized attorney who understands the complexity of ACA law and will develop a response strategy that includes:
- An Audit of Reporting to Date – In most cases, penalty letters such as these examples can be avoided by performing the ACA reporting correctly. Have an ACA expert review your company’s ACA reporting and the type of coverage it offered.
- Resubmission of Corrections – If corrections are needed to previously filed forms, they need to be made and resubmitted to the IRS.
- A Review & Application of Relief Items – There are a number of transitional relief options that could counter those penalties; however they can be extremely complex and will require a comprehensive and deep understanding of the ACA mandate and its reporting requirements.
If your company has not filed for any reporting year since the mandate took effect for 2015, at the very least your company should catch up on reporting. Securing an ACA reporting solution to assist with retrieving your relevant data for successful ACA reporting may be a daunting task, but well worth the investment – especially considering how staggering penalty amounts can be.
Looking for a better experience with your ACA compliance and reporting? ACA-Track™ has the service option and pricing that fits your business or organization. And, with your dedicated account manager, ACA-Track makes compliance and reporting easy and confident.