Employers Beware: Affordable Care Act Pay or Play Penalties Coming

Wednesday, November 29, 2017

The IRS will begin mailing employers letters informing them of their potential liability for a “pay or play” penalty for the 2015 calendar year in late 2017. “Pay or play” refers to an employer’s decision to either provide health care coverage that meets the minimum essential coverage, minimum value, and affordability requirements, or decide to pay a penalty.  Applicable large employers, generally those with at least 50 full time employees, including full-time equivalent employees, will receive IRS Letter 226J  if the IRS determines that, for at least one month in the year 2015, one or more of the employer’s full-time employees was enrolled in a qualified health plan for which a premium tax credit was allowed and the employer did not qualify for an affordability safe harbor or other relief for the employee. However, before any penalty is assessed and notice and demand for payment is made, employers will have an opportunity to respond to the agency.  The employer will have 30 days from the date of the Letter 226J to respond before any employer shared responsibility liability is assessed.  Letter 226J will provide instructions for how the employer should respond in writing, either agreeing with the proposed employer shared responsibility penalty or disagreeing with part or all of the proposed amount.  However, if an employer does not respond within the 30 day time frame, the IRS will issue a notice and demand for payment.  Employers should keep your eyes out for Letter 226J and respond accordingly!

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