ACA Employer Mandate IRS Penalties Are Here

After several years of Affordable Care Act (ACA) penalty inertia, the IRS has begun issuing employer mandate penalties.  Employers that were noncompliant for the 2015 Form 1095/1094 reporting year recently received Letter 226-J penalty notices. This is no surprise, as the IRS had updated its FAQs to state that “non-complying Applicable Large Employers should expect to receive penalty letters by late 2017.”

To illustrate the magnitude of the penalties, here are two examples.

Case #1 — Manufacturer with 65 employees

  • Penalty amount: $75,000.
  • Triggered by five employees receiving a Premium Tax Credit when they purchased health insurance on the Exchange.

Case #2 — Staffing Company with 1,000 employees

  • Penalty amount: $340,000.
  • Triggered by one “rogue” employee receiving a Premium Tax Credit when he purchased health insurance on the Exchange. The employer was penalized — even though the employee waived employer coverage and was technically ineligible for a Premium Tax Credit. The employer is challenging the penalty, but unfortunately it did not secure a signed waiver.

We understand that the IRS has issued almost 100,000 penalty letters and that some of the penalties are for millions of dollars.

To compound the issue, industry commentators expect a second wave of 2015 Letter 226-J penalty notices as well as penalty notices for calendar years 2016 and 2017. In spite of improved reporting technology, employers continue to have data and reporting struggles, primarily due to “bad data” and lack of ACA technical knowledge.


Now is the time for employers to consider a self-audit, which should include recalculating health insurance eligibility as well as line 14 Offer of Coverage and line 16 Employee Status code accuracy. It’s also a good time to start proactively organizing the documents that may be needed to prepare a response or appeal to the IRS.

While “at-risk” employers should be concerned, there’s another contingent of non-filing employers that should be relieved. These are employers that neither 1) furnished 1095-C forms to eligible or enrolled employees,  nor 2) submitted their 1094-C transmittal to the IRS.