The Tax Cuts and Jobs Act signed into law by President Trump in December of 2017 eliminated the penalty associated with the “individual mandate” beginning in January of 2019. At about the same time, the IRS ramped up ACA enforcement of the “employer mandate”. The result was a mixed message in the ear of employers. However, as employers begin indicating receipt of “Employer Shared Responsibility Payment” (ESRP) letters from the IRS (Form 226J), many employers began waking up to the realities that they need to comply with the requirements of the ACA.
The changes to the individual mandate allows the president and republicans in support of repeal of the ACA to say they did away with the most onerous component of the ACA. This message, while not necessarily true for employers tasked with ACA compliance, does give them a way to put a positive spin on last summers
The employer mandate requires employers to offer health insurance coverage to full-time and qualified part-time employees and their dependents that meet certain requirements. In addition, employers have to report on this information annually to qualified employees and the IRS. The main challenges for employers are:
- Determining which part-time employees are eligible
- Completing the required IRS reporting forms in a timely fashion
Non-Compliance or Incorrect ACA Reporting Brings Additional Work for Employers
On top of these ongoing requirements, employers are now being tasked to reply to ESRP letters 226J from the IRS. In the vast majority of these situations where an employer received an ESRP, the issue was related to inaccurate or incomplete information provided to the IRS. The challenge for employers is understanding how the content of the letter applies to the filing for their organization. The letter may state something like “you did not offer minimum essential coverage (MEC) to at least 70% of your full-time employees” in spite of the fact that they did offer MEC coverage. Employers understand that they likely made a mistake at some point in the reporting process, but where? And, how do they fix it?
Many of these ESRP letters were triggered by an employee going out to the exchange and obtaining a premium tax credit. Ideally, the employer was to be notified by the insurance exchange when the tax credit was granted to the employee. In reality, these notices did not make it to the employer. This is likely due to a failure by the employee to report the employer insurance information to the exchange. It’s possible that the failure of the employee to report the employer information was intentional, as they would not have been eligible for the tax credit if they were eligible for a qualified employer-sponsored plan.
As a result, employers are often relying on a trusted advisor or subject-matter expert for assistance with compliance and even with formulating their response to an ESRP. If you have received an ESRP, you should
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