Earlier this month, the IRS announced that it will be moving forward with issuing the first penalties against employers for failing to provide the health care coverage required by the Affordable Care Act (ACA). For a time, it was unclear whether ACA employer penalties would be enforced. In early 2017, the President had issued an executive order directing federal agencies to minimize the “economic and regulatory burden” of the ACA. However, attempts by the President and members of Congress to repeal the ACA have so far been unsuccessful.
The ACA is still currently in effect, and the IRS intends to enforce the employer shared responsibility payment (ESRP)—also known as the “pay or play” penalty—for the year 2015. In 2015, employers with 100 or more full-time employees (or the equivalent of 100 full-time employees) were required to provide health care coverage to 70% of their full-time employees. The health care must also have met minimum requirements for affordability and coverage.
Employers that failed to provide health care coverage at all in 2015 are subject to a penalty of $2,080 per full-time employee. However, for 2015, the first 80 employees are excluded from the penalty calculation. For example, an employer that failed to provide coverage to its 100 employees will only receive a penalty for 20 employees. The penalty is calculated on a monthly basis, so employers that provided health care for a portion of the year will receive a proportionate penalty. Different penalties may apply if coverage was provided, but it didn’t meet the minimum specifications.
By the end of 2017, the IRS will send out a Letter 266J to employers that failed to meet the above requirements. The letter will include an estimate of the penalty. Employers must either pay the fee or contest the penalty within the stated amount of time, typically 30 days.
For now, the penalty will be for the 2015 calendar year. Since then, the ACA has imposed different requirements. From 2016 on, all employers with 50 or more full-time equivalent employees must provide health coverage to 95% of their full-time employees. To learn more, see our article on employer obligations under the ACA in 2018.