On July 2, 2013, the IRS announced a delay until January 1, 2015, of its enforcement of the Employer Shared Responsibility provisions of the Patient Protection and Affordable Care Act (the “ACA”). This announcement is more fully described in Notice 2013-45 (“Notice”), issued by the Internal Revenue Service (“IRS”) on July 9, 2013. The Notice delays the date when the IRS will begin assessing penalties associated with the Employer Shared Responsibility obligations and when certain related information reporting commences. The Notice also provides an outline of the procedure that the IRS expects to use, beginning January 1, 2015, to assess the Employer Shared Responsibility penalties. The IRS explained the reasoning for the delay is to allow reporting requirements to be streamlined and to give employers additional time to implement proper reporting systems. The IRS expects to issue proposed rules later this summer.
Under the ACA, an applicable large employer (i.e., an employer with at least 50 full-time equivalent employees or “FTEs”), is required to offer affordable, minimum value health coverage to its full-time employees, or risk the imposition of penalties, if one or more of its full-time employees purchases coverage from a state exchange and receives a premium tax credit (the “Employer Shared Responsibility Mandate”). Compliance with the Employer Shared Responsibility Mandate, originally required to be effective January 1, 2014, will now go into effect January 1, 2015.
In addition, as part of the implementation process, Section 6055 and 6056 of the IRS Code requires health insurers, sponsors of self-insured health plans, and employers to report specific information to be used by the IRS to enforce the Employer Shared Responsibility Mandate. This reporting obligation was also scheduled to commence in 2014. In its Notice, the IRS has announced it will not require compliance with the reporting obligation until 2015.
Although it is providing this transitional relief, the IRS encouraged affected entities to maintain or expand health coverage and to voluntarily comply with the required reporting in 2014, so that the reporting systems and plan designs can be tested.
Of further note, the IRS acknowledged that because employers will not know whether any of their employees received a premium tax credit, it would be impractical to require employers to determine on their own whether penalties are owed. Therefore, the IRS indicated it will make the determination as to whether a full-time employee has received a premium tax credit, and whether a penalty is owed, based on information reported by employers about the coverage provided to their employees under IRC Section 6056, and information provided by individuals receiving a premium tax credit. If the IRS determines that an employer may owe a penalty, it will contact the employer and the employer will have an opportunity to respond to the IRS before a penalty is assessed. Notably, for employers, the IRS states that this means the employer will not be required to calculate tax penalties, or file returns submitting tax penalties.
The Notice does not affect the implementation timelines for other provisions of the ACA, such as the individual mandate, implementation of the state exchanges and an employee’s access to premium tax credits.