Reach way back into your memory bank to the time when your broker presented you with a “pay or play” analysis to determine whether you comply with the employer mandate under the Affordable Care Act. There was the $2,000 penalty which applies to every full-time employee in the event there was no valid offer of coverage and the $3,000 penalty which applies if the offer was not affordable. These penalties were indexed and went up slightly each year.
For all the talk of repeal and replace, the Republican-controlled IRS just released guidance that they will begin to collect those penalties of employers who, in 2015, were out of compliance. No, they are not going away. The IRS has finally figured out how to interpret the dreaded 1094/1095 forms which we all struggled to complete – and will being sending out penalty letters. If you see §4980H on a letter from the IRS, brace yourself.
2015 was a phase-in year and an Applicable Large Employer (100 or more full-time employees) was required to offer minimum essential coverage which also met the minimum value standard to at least 70% of full-time employees and their eligible dependents as defined under the rules. Those employers who don’t will need to add up their full-time employees in each non-compliant month and subtract 80 (there is an exempt amount), then multiply by $173.33. The total for all 12 months will be the non-deductible excise that the IRS will seek to collect.
In the event this coverage was offered, but was not affordable, look for an IRS Letter 226J, which seeks $260 per month for every employee who purchased coverage on the exchange and received a subsidy. These penalties will be pulled right off the Form 1095s.
Due to confusion surrounding these regulations and the complexity of the required forms, the appeal process is going to be a mess. But no doubt, there are going to be a lot of angry and confused employers.
Lawyers, accountants and insurance brokers are going to get very busy sorting all this out and Frenkel Benefits is ready to assist.