Employer Mandate Penalties for Non-Filers

For large group employers (51+).

The Employer Mandate requires applicable large employers (ALEs), which are those employers with 50 or more full-time equivalent employees in the preceding year, to offer health insurance to full-time  employees (generally, at least 95% of employees must be offered health insurance). Additionally, the Employer Mandate requires this coverage to provide minimum value and be affordable. Minimum value means the coverage is as good as or better than a Bronze-like plan sold on the Exchange. Affordability  means the cost for single-only coverage is not more than 9.86% (in 2019) of the employee’s household income. Employers risk penalties for failing to meet these requirements for any full-time employee.

ALEs are supposed to file forms with the Internal Revenue Service (IRS) each year so that the IRS can confirm compliance with the Employer Mandate or determine if penalties are owed. These forms are known as Form 1094-C and 1095-C, but what if an ALE doesn’t file these forms? How is the IRS to know if a penalty is due?

The IRS is starting to address this issue. The IRS is starting to send a notice to employers for which it believes may be an ALE and who did not file Forms 1094-C or 1095-C. This notice is referred to as Letter  5699. It appears the IRS is starting to identify these employers based on the number of W-2s an employer filed. 

Employers will have 30 days to respond to Letter 5699. The letter will identify the specific year that is in question. In essence, employers will have to explain to the IRS why they weren’t an ALE for the year in  question, provide copies of the Forms 1094-C and 1095-C if indeed they were filed, or indicate to the IRS when they will be filed. 

It should be noted that in addition to the penalties associated with the Employer Mandate, there are penalties for not filing Forms 1094-C and 1095-C or filing late. For the 2018 reporting year, these penalties can be as high as $540 per employee. This means employers can be hit with penalties for noncompliance with the Employer Mandate and non-compliance with the reporting requirements, resulting in a much more costly experience for non-compliance.

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