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Employers Receiving Large IRS Penalties Under Pay or Play Mandate

If you are an employer that has 50 or more employees, you should make it a top priority to review the health care that you are offering your employees. IRS penalties can be in the thousands and even millions for these applicable large employers, also known as ALEs, who do not offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees (and their dependents).

This requirement for ALEs is known by many names, including the employer shared responsibility provision, the employer mandate, and the pay or play provision. No matter what you call it though, the penalties can add up into the millions.

If your company is an ALE, some of the questions that you have to ask include: (1) does your company offer health insurance to at least 95% of its employees, (2) does the health insurance offer minimum essential coverage, and (3) is it affordable.

If you are able to answer these three questions without a thorough analysis of what each of these requirements includes, you are setting your company up for a potentially devastating penalty from the IRS.

These are all loaded questions. For example, if your company requires an employee contribution to the monthly health insurance premium, what constitutes “affordable” will be different when comparing a lower-income employee to a higher-income employee.

If one of your employees shops for health insurance in the marketplace and receives a subsidy, guess who the IRS is going to contact to verify whether the employer should be the one providing health insurance? If you guessed that the IRS is going to contact the employer, you are correct. If the employer either didn’t offer health insurance, the insurance offered wasn’t deemed affordable under the affordable care act, or the insurance didn’t offer minimum essential coverage, hold on tight because the penalties add up fast. Don’t forget to multiply the fine by the number of employees who the IRS determines should have received certain health insurance.

Caution: if, as an employer, you receive this IRS notice, just respond to the IRS. Contacting the employee or taking an action toward the employee may be viewed as retaliation – which is illegal.

If an employee declines coverage, be sure to have the employee sign a decline letter each year, which includes the reason why the employee is declining the employer offered health insurance.

The mandate has received the name “pay or play” for a reason, so the best approach for businesses is to immediately take a detailed look at the requirements and then ensure compliance – because the IRS is going to make sure that employers are going to either pay or play.

For details and information on the provisions, the IRS website can be viewed here.

At Northwest Corporate Counsel, we always work with our business clients to keep their costs down, to establish a budget, and to give them the best service without the billable hour quotas of larger law firms. If we can help your business, just let us know. Give us a call at 509-710-1914 or email us at and let us know how we can help.

Disclaimer: The content of this website is intended to convey general information. It should not be relied upon as legal advice. It is not an offer to represent you, nor is it intended to create an attorney-client relationship. We do invite you to contact us; however, please do not send any confidential information until we have confirmed an attorney-client privilege has been established.


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