ESRP Penalty Failure to Comply with ACA Employer Mandate

One of my clients recently contacted my office and advised that his Company had received a Notice from IRS regarding calculation of the Employer Shared Responsibility Payment (ESRP).  According to the letter, the IRS had determined that the Company was an Applicable Large Employer (as defined below) and owed an ESRP penalty of almost $200,000 for 2015.  The good news is that I was able to get the IRS to completely waive the ESRP penalty for this client.  In this blog post I will tell you how, but first some background on this issue.

As originally drafted, the Affordable Care Act contained an individual mandate and an employer mandate.  The individual mandate required each individual to obtain and maintain minimum health insurance coverage.  The employer mandate required each employer to offer affordable health insurance coverage.  The individual mandate was eliminated as most people know.  But unbeknownst to some, the employer mandate remains.

The ESRP applies to all Applicable Large Employers (ALE).  An ALE is an employer that has 50 or more full time employees (including full time equivalent employees) during the preceding calendar year.  An ALE is liable for the ESRP penalty for any month in 2015 if it did not offer minimum essential coverage (MEC) during such month to at least 70% of its full time employees and at least one full time employee was allowed the employee premium tax credit (PTC).  The amount of the ESRP penalty for each month in 2015 is calculated by multiplying the number of full time employees (less 30) by $173.33.  For example, if the employer has 80 full time employees (after deducting 30) in a particular month in 2015, the ESRP penalty for that month is $13,866.40.  If the employer has 80 full time employees (after deducting 30) in every month in 2015, the ESRP penalty for the entire year 2015 is $166,396.80.

The good news is that transition relief is available to waive ESRP penalty in 2015 in certain situations.  The IRS is also willing to work with employers to correctly calculate the number of full time employees and full time equivalent employees that may have been incorrectly reported on Forms 1094-C and 1095-C.

For employers with less than 100 full time employees (including full time equivalent employees), no ESRP penalty will be assessable for any month if the employer certifies that it did not reduce the size of its workforce or the hours of service of its employees in order to qualify for the transition relief and the employer did not reduce or eliminate the heath care if any it offered.

For employers with 100 or more full time employees, the ESRP penalty will be calculated as indicated above, but the employer will be permitted to reduce the number of full time employees on which the calculation is based by eighty (80) rather than thirty (30).

If you receive a Notice regarding an ESRP penalty and would like assistance in seeking a waiver, please contact Jeff Senney, or Matt Stokely, or call either at 937-223-1130.


AUTHOR: Jeff Senney