4980H Penalties — What We Know Now

We mentioned in early November that the IRS had announced plans to start collecting 4980H employer penalties soon. “Soon” is “now,” as we have seen the so-called 226J assessment letters start to land in employers’ mailboxes. Here’s what we know so far:

  • The IRS appears to be starting with 4980H(a) penalty assessments. By way of refresher, that’s the big penalty imposed on employers who failed to make offers of coverage to at least 70% of all full-time employees in 2015. (That number goes up to 95% in subsequent years.)
  • We’ve seen multiple cases where employers clearly satisfied the 4980H(a) requirement but made a mistake in completing their reporting forms. It appears that the IRS is taking a light touch with these employers if they respond promptly with accurate explanations of what went wrong.
  • In some cases, however, those same employers may be vulnerable to 4980H(b) penalties. That’s the penalty that applies when an employee receives an offer of coverage that is either not “affordable” or not “minimum value.” This one gets complicated, so we’ll save it for the next blog post. Our learning, however, is that some 226J assessment letters imposing the big 4980H(a) penalty are turning quickly into 4980H(b) penalties as the facts evolve.
  • Many employers are surprised by the 30-day “Response Date” on the IRS letter. We believe extensions have been granted in most cases, but we’re aware of at least one situation in which the IRS refused to budge on this. So it’s important that employers keep a close eye on their mail and, if the person who was responsible for ACA reporting in 2015 (specifically, the person who signed one of the Employer’s Form 1094s) is no longer around, it’s wise to revisit where that person’s mail is going.