Employers to face excise tax if not in compliance with ACA

Employers could be receiving notices before the end of the year that they will be fined for not providing minimum essential healthcare coverage to employees under the Affordable Care Act.

Applicable large employers may be subject to the excise tax if they do not offer minimum essential coverage to at least 95 percent (70 percent in 2015) of their full-time employees (and their dependents) and at least one full-time employee purchases health coverage through a health insurance exchange (marketplace) and receives a premium tax credit to subsidize that purchase of health insurance.

The excise tax in this case is significant, amounting to $2,000 (as adjusted for cost of living) for each full-time employee, with the first 30 employees excluded.

Another excise tax could be assessed even if employers do offer minimum essential coverage to full-time employees if that coverage does not meet an affordability and minimum value standard. Violations of this will result in an annual excise tax of $3,000 (as adjusted for cost of living) multiplied by the number of employees who purchase health coverage on the exchange and receive a premium tax credit.

If imposed, the excise taxes will be assessed on a month-by-month basis. In other words, if an employee qualified for a premium tax credit in only one month of the year, the employer would be assessed one-twelfth of the annual excise tax amounts for the month in which the employer failed to comply.

Employers can expect to begin receiving letters from the IRS (Letter 226-J) by the end of the year notifying them of any potential liability for 2015, according to updated questions and answers on the IRS website.

If you or someone in your human resources department receives a Letter 226-J, please respond to the letter. You will have 30 days to challenge their findings in writing. If the issue is not resolved, then you will have 30 days more to request a conference to challenge the assessment.

As noted above, the penalties for failure to offer minimum essential coverage could be very steep. Please contact us if you have any questions.

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