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Bill Enck, CPA
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Roger Prince

The ACA underway: employer mandate penalty notices expected soon

2017-06-13

November 2, 2017 Update: The IRS announced that it will start issuing 2015 ACA penalty letters before the end of this year. Get the latest here.


We’ve all seen the Energizer bunny commercials with the “it keeps going and going” tag line. When it comes to Affordable Care Act (ACA) employer mandate penalties, the tag line might read “we keep waiting and waiting.”

The ACA’s employer mandate still exists and until it is repealed or replaced, Applicable Large Employers (ALEs) must comply with the rules or face possible penalties. And as the battery life of an Energizer will come to an end, so too the constant waiting by ALEs for employer mandate penalty assessments, at least as it relates to the 2015 calendar year. Recent Treasury Department information indicates the IRS will begin issuing employer penalty notices soon.

Why You’d Receive a Penalty

An employer will only be liable for a penalty if one or more of its full-time employees receives a subsidy or a cost-sharing allowance. The Marketplace Exchanges are supposed to issue a Section 1411 Certification to any employer who has an employee who purchased health insurance through the Marketplace and qualified for, and is receiving, a health insurance subsidy (aka Advanced Premium Tax Credit) or cost-sharing reduction.

IRS Penalty Assessments related to 2015
The first year the IRS will assess penalties under the employer mandate is the 2015 calendar year based on the 2015 Forms 1094-C and Forms 1095-C filed by ALEs by June 30, 2016. Fortunately, the IRS has indicated that they would not assess penalties for late filing where good-faith compliance exists.

We expected the IRS would send initial 2015 penalty assessments in late 2016. This didn’t happen. A Treasury Inspector General for Tax Administration audit found issues affecting the ACA’s employer mandate enforcement. There are three areas of particular concern:

  1. The IRS’s inability to transfer information accurately from paper filed Forms 1095-C and 1094-C to the ACA Information Returns System (AIR system.)
  2. The inability of the AIR system to generate correct error codes for Forms 1095-C and 1094-C.
  3. Form 1095-C errors were misreported as having affected 6.2 million forms. The error actually occurred on only 828!

So, what do you do if you receive a notice?

If you receive a notice, keep in mind it relates to a potential federal tax penalty assessment and you will want to make sure you accurately respond to the notice to limit or eliminate the ultimate penalty assessment. An unsuccessful response or no response to the IRS notice will undoubtedly lead to an IRS penalty assessment under the employer mandate provisions. Again, we recommend that during the entire process, you want to be sure you’re working with a qualified tax advisor.

The initial notice (most likely in the form of a letter) will identify employees who received an insurance subsidy for the 2015 tax year. If you receive such a notice, we recommend:

  1. Review the information in the notice very carefully to see if it is accurate.
  2. Work with a qualified tax advisor familiar with the ACA’s rules if there is any question regarding a possible penalty.
  3. File a timely response (unless you are absolutely sure the listing of employees who received an insurance subsidy is accurate). It is crucial to retaining your rights to further address any penalties.

What is the future of the ACA’s Employer Mandate Penalties?

The American Health Care Act (AHCA) aims to repeal certain ACA provisions. While it does eliminate the penalties for 2016 and beyond, the AHCA does not eliminate the ACA employer mandate penalties for 2015. ALEs must continue to comply with the ACA’s employer mandate and reporting provisions.

We all know that Energizer batteries don’t last forever. The ACA may not last forever either, but in the meantime, the waiting period for penalty assessments is narrowing and the impact that the ACA can have on business operations is still strong. Please contact Bill Enck or Roger Prince if you have any concerns or questions or need recommendations.