Risk & Business Magazine California Risk & Business Magazine Summer 2017 | Page 8

BY: CHRISTINE P. ROBERTS
MULLEN & HENZELL L.L.P.
ACA Penalties For Large Employers:
Waiting For The Other Shoe To Drop
R
epeal and replacement of the
Affordable Care Act (ACA) by
the American Health Care Act
(AHCA) may be underway in
Washington D.C., but until a final
version of the AHCA is signed into law, the
ACA is the law of the land. In fact, Applicable
Large Employers (ALEs) may begin to receive
notifications from the IRS starting in May
2017, of potential liability under the ACA
employer shared responsibility rules. These
rules impose excise taxes on large employers
that either failed to offer minimum essential
coverage to a sufficient percentage of full-
time employees or failed to offer affordable,
minimum value or higher coverage to one or
more full-time employees. The excise taxes
first apply for 2015, but various forms of
transition relief may apply for the 2015 plan
year including months in 2016 that are part of
the ALE’s 2015–2016 non-calendar plan year.
The version of the AHCA passed by the House
of Representatives on May 4, 2017 repeals the
employer mandate excise taxes retroactive
to January 1, 2016 but does not affect excise
tax liability for 2015. It is anticipated that the
Senate will make many changes to the House
bill, so large employer liability for 2015 and
2016 ACA excise taxes remains up in the air.
The ACA also requires large employers to
furnish employee statements (Forms 1095-C)
and file them with the IRS under transmittal
Form 1094-C, and it imposes separate penalty
taxes for failing to timely furnish and file the
required forms. Large employer reporting was
required for 2015 and 2016, even if transition
relief from penalty taxes applied for 2015. The
House version of the AHCA does not change
large employer reporting duties and it is
unlikely the final version of the law will do so,
as procedural rules may limit its provisions to
those affecting tax and revenue, and reporting
rules do not do so.
The IRS calls its program for monitoring
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large employer compliance with the ACA
its “ACA Compliance Validation” system,
or “ACV.” The IRS recently issued a progress
report on the ACV system (ACA Penalties
for Large Employers: Waiting for the Other
Shoe to Drop). The report notes that there
are a number of glitches in the Forms 1095-C
and 1094-C review system that the IRS is
working to correct (for example, error codes
generated where no errors exist or no error
codes generated where errors do exist). More
importantly, the IRS announced that it plans
to start deploying the ACV system in May
2017, having missed its original deadline of
January 2017.
WHAT DOES THIS MEAN FOR APPLICABLE
LARGE EMPLOYERS (THOSE WITH
FIFTY OR MORE FULL-TIME EMPLOYEES
INCLUDING FULL-TIME EQUIVALENTS)?
First, employers that failed to furnish Form
1095-C and file copies with Form 1094-C may
receive a letter from the IRS titled “Request
for Employer Reporting of Offers of Health
Insurance Coverage (Forms 1094-C and
1095-C),” also known as a Letter 5699 form.
Employers will have thirty days to complete
and return the form that contains the
following check boxes:
✓ Employer already complied with
reporting duties;
✓ Employer did not comply but encloses
required forms with return letter;
✓ Employer will comply with reporting
duties within ninety days (or later, if
further explained in the form); or
✓ Employer was not an Applicable Large
Employer for the year in question.
Forms may be received regarding reporting
for 2015 or 2016. Employers receiving Letter
5699 forms should contact their benefit
advisors immediately and plan to respond
as required within the thirty-day limit. The
good faith relief from filing penalties applies
for timely filed but incomplete or incorrect
returns for 2015 and 2016, but relief from
penalties for failures to file entirely for
those years is available only upon a showing
of “reasonable cause,” which is narrowly
interpreted (for instance, due to fire, flood, or
major illness).
In the next phase of implementing ACV, the
IRS will notify large employers of potential
liability for ACA penalty taxes. Note that this
is a different and separate process from the
notices that healthcare.gov and some state
exchanges issued, variously called “Exchange
Notices,” “Marketplace Notices,” or Section
1411 notices. Exchange Notices are triggered
when a full-time employee qualifies for
premium tax credits on an exchange, and
they allow the employer to demonstrate to
the exchange that no penalty should apply, if
applicable (for example, the employee was not
full-time or was offered affordable, minimum
value or higher coverage). The Exchange
Notices do not themselves result in any large
employer penalty.
The coming IRS notices will begin a process
that may end in imposition of penalty taxes,
however, and employers must respond
to them promptly and in full. Employers
receiving ACA penalty notices from the IRS
should contact their benefit advisors without
delay, and should plan to comply with the
ACA while it remains in effect, regardless of its
long-term fate in Washington. +
Christine is a partner at Mullen & Henzell L.L.P. a 60+ year firm located in Santa Barbara,
California. She has limited her practice to employment benefits for over 20 years, helping employers
and benefit brokers steer a clear path to ERISA compliance, de-mystifying the jargon, and
providing practical advice to clients in language they can understand and act on with assurance.