David Rodeck

What to Do If Your Company Receives an ACA Penalty From the IRS

Under the Affordable Care Act (ACA), employers of a certain size must offer health insurance to their full-time employees. If the IRS rules that your organization didn’t meet that requirement, they will charge you a shared responsibility penalty. Here’s what you need to know about the ACA employer penalty including a few ways to respond.

How Are the ACA Requirements for Employers?

The threshold for the ACA requirement for employers is 50 full-time employees. While they don’t all need to sign up for the plan, one must be available to them. The coverage must also meet “affordable” and “minimum value” standards under the ACA.

If you did not offer coverage to at least 95 percent of your full-time employees and an employee receives a tax credit for buying coverage on the individual exchanges, you will be penalized. The 2017 penalty was $2,260 per full-time employee, minus the first 30 employees, according to the Society for Human Resource Management. So if you have 70 full-time employees, you will only owe the ACA employer penalty for 40.

A separate penalty applies when you provide coverage not considered affordable for employees. This would mean that at least one employee received a premium tax credit from the government, even though they technically had workplace coverage. In this case, the penalty is $3,390 per full-time employee.

What Are the ACA Requirements for Employers?

At the end of the year, the IRS reviews health plan information to see whether an employer met the ACA requirements or if they should be penalized. If they judge that you must pay the shared responsibility penalty, they will send you a letter — Letter 226J — saying so. According to the IRS, you have 30 days to respond, either agreeing to their assessment or to claim that a mistake has been made. If you do not respond within 30 days, the IRS will assume you agree with their assessment and you will be required to pay the penalty.

If you have any questions, the letter will list the contact information of an IRS employee who can discuss the situation.

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Response Option 1: Paying the Penalty

If the IRS’s assessment is correct and your organization didn’t meet the ACA coverage requirements, you will need to pay the ACA penalty. After receiving a direct affirmative response or failing to hear back from you, the IRS will send a demand-for-payment letter that lists the amount you owe and your options for paying.

Response Option 2: Reporting an Error

On the other hand, if you do not agree with the IRS’s assessment, you must reply within 30 days explaining why you should not be penalized, providing proof of your claim. If you did offer workplace coverage for all your full-time employees for the entire year, for example, you should submit a copy of your Forms 1094-C and 1095-C as evidence.

Before replying to the IRS, contact your health insurance provider to tell them about the IRS letter and ask for assistance in proving that you should not be penalized. You can also request a conference to discuss the situation with the IRS Office of Appeals.

Regardless of your plan for the ACA penalty, it’s important to respond quickly to the IRS to establish your intentions. This will increase the chances of getting your desired outcome while avoiding extra fines or interest charges.

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This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.

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