IRS to Begin Enforcing 4980H Penalties on Large Employers Before End of 2017

Matthew P. Chiarello • November 10, 2017

On November 2, 2017, the IRS issued guidance regarding the enforcement of Employer Shared Responsibility payments, otherwise known as the Section 4980H penalty. Questions 55-58 of the IRS Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act indicate that the IRS is moving forward with assessing penalties on Applicable Large Employers (“ALEs”) who failed to offer appropriate health care coverage under Section 4980H for the 2015 calendar year.

An ALE is generally an employer who employs at least 50 full-time employees during the calendar year. An ALE will be assessed a penalty for the 2015 year if any full-time employee received a premium tax credit or cost-sharing reduction and either: (a) the employer failed to provide minimum essential health coverage to 95% of its full-time employees; or (b) the employer offered minimum essential health coverage to 95% of its full-time employees, but the coverage was not affordable or did not provide minimum value.

Letter 226J

In the next few weeks, the IRS will begin issuing Letters 226J (“Letter”) to certain ALEs, informing them of potential liability for a shared responsibility payment. ALEs have 30 days to respond to the Letter.  If an ALE disagrees with the penalty assessed in the Letter, the ALE may wish to seek counsel experienced with such matters and/or respond to the IRS with details as to why it disagrees.  For instance, a penalty may have been assessed with respect to employees who were not full-time employees or who qualified for an affordability safe harbor.

If an ALE does not respond to the Letter within 30 days, the IRS will assess the penalty indicated in the Letter and will issue a Notice and Demand for Payment.

Penalties

For 2015, the 4980H(a) penalty is $2,080 and the 4980H(b) penalty is $3,120 per each applicable employee. For additional information about Section 4980H and penalty amounts for future years, please see our SW Benefits Blog Post from September 19, 2017, “Section 4980H Large Employer Penalties – IRS Signals the Health Coverage Penalties Remain in Force.”

Employers may wish to be on the lookout for Letters 226J in the coming weeks because a failure to respond promptly to a contested Letter may result in payment of a higher penalty.

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