Treasury Announces Large Employer Play or Pay Penalties Will Be Delayed For One Year

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On July 2, 2013, the Treasury Department informally announced that large employers will have an additional year to comply with the employer shared responsibility penalty provisions in Section 4980H of the Internal Revenue Code (the “Code”), which was added by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (the “Affordable Care Act” or "ACA"). The penalty provisions in Code Section 4980H, commonly referred to as the “large employer play or pay penalties,” were originally scheduled to take effect on January 1, 2014. Large employers will now have an additional year before the penalties take effect.

Treasury also announced that insurers and employers will have an additional year to comply with the mandatory employer and insurer reporting requirements under Code Sections 6055 and 6056. Nevertheless, Treasury has indicated that it “will work with employers, insurers, and other reporting entities to strongly encourage them to voluntarily implement this information reporting in 2014, in preparation for the full application of the provisions in 2015” noting that “[r]eal-world testing of reporting systems in 2014 will contribute to a smoother transition to full implementation in 2015.”

This announcement is welcome relief for large employers who might have been subject to penalties starting in 2014. This will now give employers more time to focus on the other Affordable Care Act changes that take effect in late 2013 and 2014, of which there are many. Additionally, as Treasury pointed out in its announcement, its actions in extending the effective date of the large employer play or pay penalties and the related reporting requirements “do not affect employees’ access to the premium tax credits available under the ACA (nor any other provisions of ACA).”  As a result, employers will still have to comply with certain related provisions.

The announcement indicated that the Internal Revenue Service will publish formal guidance within the next week describing details of the transition relief.

In the coming weeks, we will continue to publish a series of newsletter articles focusing on the most significant changes affecting employer group health plans in 2013 and 2014. The first two newsletters in this series are Department of Labor Sets October 1 Deadline for Employers to Send Health Befefit Exchange Notices; COBRA Election Notices Must Also Be Updated and PCORI Fees for Many Plan Sponsors Are Due July 31.

Circular 230 Disclaimer: To ensure compliance with Treasury Regulations governing written tax advice, please be advised that any tax advice included in this communication is not intended, and cannot be used, for the purpose of (i) avoiding any federal tax penalty or (ii) promoting, marketing, or recommending any transaction or matter to another person.