The Internal Revenue Service (IRS) now is enforcing the Affordable Care Act’s Employer Shared Responsibility provisions (ESRP) for health care benefits for 2015 and 2016. The IRS also has announced the affordability percentage for tax year 2019.
The ESRP applies to Applicable Large Employers (ALEs). The provisions require ALEs to offer health benefits that provide at least minimum essential coverage and value and are “affordable” (as defined by the IRS) for full-time employees and their dependents. Employers who fail to comply must pay a penalty to the IRS. If your company is an ALE and you received Letter 226-J from the IRS requiring more information about your health benefit plan in 2015, you soon will receive Letter 227 informing you if you must pay a penalty. And, if you’re breathing a sigh of relief because you did not receive a notice for 2015, be aware that the IRS will soon be sending its 2016 notices.
Definition of an ALE
The ACA defines an ALE as an employer who, during the prior year, had on average at least 50 full-time employees, including full-time equivalent employees. Full-time denotes an employee who works at least 30 hours each week or 130 hours per month. A full-time equivalent employee is a combination of all your part-time employees. To determine your number of full-time-equivalent employees for a month, you must:
Combine the number of hours of service of all non-full-time employees for the month but do not include more than 120 hours of service per employee, and Divide the total by 120.
Letter 227
Letter 227 is not a bill. It is the IRS response to information an ALE filed after receiving Letter 226-J. It explains the outcome of the review and the next steps you will take to fully resolve the ESRP. There are five types of Letter 227. The responses range from notification that an ESRP penalty will be assessed to the IRS’s decision on an appeal. The IRS has set up a new web page at for businesses that have already been assessed a penalty and have written to the IRS to either dispute their proposed assessment or to pay it. The web page explains each type of Letter 227 and outlines the next steps for affected employers in the IRS’s penalty assessment, appeals and resolution processes. Employers who are required to pay a penalty should review the letter and attachments and complete and return the Letter 227-L or 227-M by the date provided. They then will receive a CP220J (a bill).
New Affordability Percentage
The IRS recently set the “affordability” percentage for employer-sponsored coverage for the tax year 2019. All employers, who are ALE’s, who offer health insurance, must ensure that the health benefit coverage offered to employees costs no more than 9.86 percent of an employee’s household income in 2019 (previously 9.56% in 2018). Your employees need to know whether the insurance you offer is considered affordable, because they will qualify for a premium tax credit subsidy from a health insurance exchange if their share of the employer-group coverage offered to them is unaffordable.
If you are unsure whether you need to be — or are — in compliance with the employer mandate, please contact your broker.