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IRS to Begin Enforcement of Employer Mandate

Posted on Tuesday, November 21st, 2017

Regardless of the situation, a letter from the Internal Revenue Service (IRS) is rarely a welcome communication.  For employers the IRS has started the process of delivering letters to employers that were deficient in offering a qualified health plan to their employees – the first round are to those employers from 2015 with more than 100 full time employees and many letters are already in the mail.

The letter starts with the following:  “We have made a preliminary calculation of the Employer Shared Responsibility Payment (ESRP) that you owe.”  To view a copy of the IRS letter, please click here.

The Affordable Care Act (ACA) requires employers to either offer Minimum Essential Coverage (MEC) to their employees or face penalties.  They even face penalties if they offer MEC, but do not ensure that it is both affordable and adequate coverage. This part of the ACA is known as the employer mandate, or more commonly, the pay or play mandate, as employers are required to “play” by offering MEC, or “pay” a financial tax penalty.

ALEs who fail to offer affordable and MV to substantially all FT employees may be subject to one of two tax penalties if at least one FT employee purchases health coverage through the Health Insurance Exchange Marketplace and receives a premium tax credit to subsidize their premium payments.

The “no offer” penalty – If an employer fails to offer health coverage to substantially all FT employees, and at least one FT employee receives a premium tax credit to purchase coverage from the Health Insurance Exchange Marketplace, the employer is subject to the following financial tax penalty:

  • $2,000 multiplied by the organization’s total number of FT employees, minus 30.

The “inadequate coverage” penalty – If an employer offers health coverage to substantially all FT employees, but the coverage fails to meet the affordable and MV provisions, and at least one FT employee purchases coverage through the Health Insurance Exchange Marketplace and receives a premium tax credit, the employer is subject to the following financial tax penalty:

  • The employer must pay the lesser of $3,000 per subsidized FT employee

Or

  • The employer must pay $2,000 per FT employee, minus the first 30

For the current calendar year (2017) and per the Federal government, an employer-provided health insurance policy is considered affordable if the contributions an employee makes toward the self-only coverage do not exceed 9.6% of the employee’s wages.


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