This morning, the Supreme Court of the United States, by a 6-3 margin, removed the last legal obstacle to employer mandate tax enforcement. Because the HHS had authority under Code § 36B to subsidize insurance plans bought through Healthcare.gov (according to an IRS rule), those subsidies properly will trigger Code § 4980H employer mandate tax assessments by the IRS starting in early 2016. If you are accruing liabilities, you need to determine how you’ll pay those assessments and how you might minimize them. You’ll probably need outside help to do both.
We predicted this opinion but we’re not celebrating. We’re especially concerned for state agencies, local governments, smaller large employers and employers that rely on employees leased in full-time status for less than one year. Here’s a simplified comparison of potential § 4980H(a) assessments based on the same payroll numbers for 2014 (ALE in 2015, assessed in 2016) and 2015 (ALE in 2016, assessed in 2017).
200 Full-time W-2 Employees, all offered coverage (90.1%)
20 Full-time Leased Employees, none offered coverage (9.9%)
2016 § 4980H(a) assessment: $0 (70% offer transitional relief)
2017 § 4980H(a) assessment: $360,000+ (95% offer required)
Should this employer fail to file and deliver its required 2015 Forms 1094-C and 1095-C in early 2016, a $44,000 penalty could be assessed for that default, even though no employer mandate tax was owed for 2015.
Many more traps have been laid and few are sufficiently wary. As Justice Roberts understated it in his majority opinion, “[The ACA] does not reflect the type of care and deliberation that one might expect of such significant legislation.” Boy, howdy. Get help.
Update (in response to inquiries): Some had speculated that the Court might delay the effective date of its decision if it invalidated Healthcare.gov subsidies. This decision in favor of the subsidies, and therefore in favor of the employer mandate, is effective retroactively. The mandate was effective for most “Applicable Large Employers” (on a controlled group basis) beginning January 1, 2015.
Update: We’re getting questions and comments that reflect fundamental misconceptions about the employer mandate. We’ll correct two here and save others for a separate article.
State and local government employers are covered, and most will be “large” due to aggregation rules. The IRS “controlled group” and “affiliated service group” rules don’t fit government employers exactly, but similar aggregation principles will apply.
It’s too late to “get small” for 2015. You are “large” or not in 2015 based on your 2014 employment levels (assuming that you existed in 2014). Your exposure to 2016 § 4980H assessments is based on your “Applicable Large Employer” status in 2015 (which is based, in turn, on your 2014 employment) but your “assessable payment amounts” will be based on 2015 employment levels.