Plan Sponsors Take Note! IRS Stipulates that ACA Employer Penalties Cannot be Waived or Reduced

November 22, 2019
Hall Benefits Law, LLC

A recent Information Letter issued by the IRS discusses the employer mandate, also known as the employer shared responsibility payment (ESRP) and questions regarding waiver and hardship payments. In short, the IRS letter clearly stipulates that the Affordable Care Act (ACA) employer mandate penalties will not be waived or reduced.

Applicable Large Employers (ALE)

IRS Code Section 4980H lists penalties for ALEs that do not offer qualified health care coverage. This ESRP is assessed and collected as a tax, but it is levied based on non-compliance with the ACA. ALEs are employers who have a minimum of 50 full-time or full-time equivalent employees in the preceding calendar year.

The Information Letter outlined two situations where an ALE will owe an ESRP.

  1. When the ALE does not offer minimal essential coverage as defined in the ACA to substantially all of its full-time employees and their dependents. This happens when at least one full-time employee is allowed the Premium Tax Credit.
  2. When the ALE does offer minimal essential coverage to their employees and the employees’ dependents, but at least one full-time employee was allowed a Premium Tax Credit because the coverage offered by the business does not provide minimum value, is not affordable, or the employee was not offered coverage.

Waivers and Hardship Reductions No Longer Available

While the provision of the ACA that included ESRPs was effective in 2015, many smaller ALEs were offered transition relief. In 2017, an Executive Order signed by President Trump directed the IRS to continue to waive, grant exemptions, defer, and otherwise delay the implementation of and portion of the ACA that imposed a regulatory burden on purchasers of health insurance.

As part of the discussion on how best to comply with this order, the IRS debated whether the ESRP relief would be extended. The IRS determined that the Executive Order did not change any provisions of the ACA legislation as made by Congress and only applied to regulations issued under the ACA. Because the ESRP was created as part of the ACA legislation and not as a regulation, the Executive Order does not apply to the ESRP provision and thus, relief from this provision of the legislation cannot be granted to ALEs.

The benefits attorneys at Hall Benefits closely monitor developments within ACA to ensure our clients stay in compliance. While many businesses were hoping that the Executive Order from the President meant that transition relief would be extended, this ruling by the IRS means that businesses must quickly bring their health plans into compliance or face penalties from the IRS. We are already working with our clients to ensure compliance and can review the benefits programs of new clients to help spot issues. Give us a call 678-439-6236 today or visit the Hall Benefits Law website to learn more.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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