The IRS has updated its website to further explain the types of Employer Mandate penalty payments and how they are assessed and calculated.
Tier 1 Penalty
In order to avoid the $2,000 Employer Mandate Penalty (Tier 1 Penalty) for each full-time employee, the employer must offer minimum essential coverage to at least 95% of its full-time employees (70% in 2015 only).
Tier 2 Penalty
Even if an employer offers minimum essential coverage to a sufficient number of full-time employees to avoid the Tier 1 Penalty, the employer will still owe a second type of Employer Mandate Penalty (Tier 2) if it fails to offer minimum value or affordable coverage for any full-time employee who receives a premium tax credit. It also reiterates that an offer of minimum essential coverage to an individual full-time employee will be treated as an offer to the employee and dependents, provided that the employer has taken steps during 2015 to extend coverage to dependents.
“Offer of Coverage” Definition
A significant part of the update concerns the meaning of “an offer of coverage,” which is critical to avoid the Employer Mandate Penalties. This section explains what it means not to offer coverage:
“Generally, if an employer fails to offer minimum essential coverage to a full-time employee for any day of a calendar month, that employee is treated as not having been offered minimum essential coverage for the entire month. If an employer fails to offer an employee an effective opportunity to elect to enroll in the coverage at least once for the plan year, or to decline to enroll if the coverage offered does not provide minimum value or is not affordable, that employee is not treated as having been offered the coverage. For an additional description of what an offer of minimum essential coverage is for purposes of the employer shared responsibility provisions, see section 54.4980H-4(b) of the ESRP regulations. For information related to offers of coverage for January 2015 see our Transition Relief page.”
Assessing and Calculating Employer Mandate Penalties
Finally, the IRS explains how the Employer Mandate Penalties will be assessed and collected. Employers will not self-report or include the Employer Mandate Penalties with any tax refund they may file. Rather, based on information from the employer’s and employee’s ACA information returns, the IRS will calculate the penalties and contact the employer to inform it of any potential liability. Employers will be given an opportunity to respond and the IRS may then issue a notice and demand for payment from the employer. The IRS also stated that it will adopt procedures to ensure that employers receive certifications when an employee receives a premium tax credit for purchasing insurance through a public health care exchange.