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 8 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.