No Statute of Limitations Applies for ACA Pay or Play Penalties

On February 21, 2020, the Internal Revenue Service (IRS) Office of Chief Counsel released a memorandum clarifying that there is no applicable statute of limitations on pay or play penalty assessments under the Affordable Care Act (ACA).

Meaning, there is no time limit for the IRS to assess penalties for employers that do not comply with the pay or play rules for a given year.

These rules require applicable large employers (ALEs) to offer affordable, minimum value health coverage to their full-time employees or pay a penalty. Because no statute of limitations applies, the IRS can asses a penalty for an ALE’s noncompliance many years after the violation occurred

Background

A statute of limitations generally sets a maximum time limit for parties to take legal action based on an alleged violation or offense.

The IRS uses Forms 1094-C and 1095-C filed by ALEs, in conjunction with Forms 1040 filed by individuals, to determine an ALE’s pay or play penalty liability, if any, for each year. If a pay or play penalty is determined to be owed, the IRS will send Letter 226-J, followed by Notice CP 220J, to the ALE to propose and assess the penalty.

These penalties are subject to IRS lien and levy enforcement actions. Interest will accrue from the date of the notice and demand and continue until the ALE pays the total penalty balance due.

Moving forward, employers will want to be sure they are complying with these rules for each applicable year to avoid costly penalties.

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Questions? Contact the Creative Benefits Team at 866-306-0200 or solutions@creativebenefitsinc.com.