IRS Information Letter Underscores Continued Applicability of Employer Shared Responsibility

The IRS has released an information letter on employer shared responsibility under Code § 4980H in response to a legislator’s inquiry. The legislator asked whether employer shared responsibility penalties—which were added to the Code as part of the Affordable Care Act (ACA)—may be waived or reduced based on hardship or other factors, and whether the IRS will extend transition relief for employers with fewer than 100 employees.

The letter provides background information on employer shared responsibility, noting that applicable large employers (ALEs) may be liable for penalties if they fail to offer adequate health insurance to full-time employees and their dependents. The letter explains that the law does not provide for a waiver of the penalties but several forms of transition relief were available for 2015 and 2016. However, no transition relief is available for 2017 and subsequent years. The letter concludes with a reference to a January 2017 executive order directing federal agencies to exercise their discretion to waive, defer, grant exemptions from, or delay regulatory burdens imposed by the ACA (see our Checkpoint article). The letter points out that, notwithstanding the executive order, the ACA’s legislative provisions remain in force until Congress changes them, so ALEs must follow the law and pay applicable penalties.

EBIA Comment: Enforcement of employer shared responsibility penalties got off to a slow start. Although the ACA provided that penalties would apply starting in 2014, implementation of employer shared responsibility was delayed until 2015 (see our Checkpoint article). And transition relief further delayed penalties for qualifying ALEs with fewer than 100 full-time employees until after the 2015 plan year (see our Checkpoint article). As noted in the information letter, that transition relief has expired. Forms related to 2015 penalty assessments were not released until the end of 2017 (see our Checkpoint article). Now, however, enforcement has picked up, and many ALEs—rightly or wrongly—have received penalty notices. This information letter signals the IRS’s position that, unless the ACA is changed, ALEs that fail to satisfy Code § 4980H will continue to be liable for employer shared responsibility penalties. Keep in mind that the penalty amounts increase with annual indexing. For 2018, the annual penalties (per applicable employee) are $2,320 under Code § 4980H(a) and $3,480 under Code § 4980H(b). For more information, see EBIA’s Health Care Reform manual at Section XXVIII (“Shared Responsibility for Employers (Play or Pay Penalty Tax)”).

Contributing Editors: EBIA Staff.