This post was updated on July 14, 2013 to reference publication of IRS Notice 2013-45, Transition Relief for 2014 Under Secs. 6055 (Sec. 6055 Information Reporting), 6056 (Sec. 6056 Information Reporting) and 4980H (Employer Shared Responsibility Provisions).

In an online memo titled “Continuing to Implement the ACA in a Careful, Thoughtful Manner,” Mark Mazur, the Treasury Department’s Assistant Secretary for Tax Policy, announced July 2, 2013 that Treasury would not be enforcing “employer shared responsibility payments” – the pay or play penalty taxes – in 2014 as originally required under the ACA (now codified at Internal Revenue Code Section 4980H).  Instead, the penalties will apply to “applicable large employers” for the first time in 2015. (See end of post for definition of this term.)  In 2014, eligible employees will be able to obtain premium tax credits and cost-sharing payments under the state and federally facilitated health exchanges in 2014, but financial aid provided to full-time employees will not trigger tax penalties for applicable large employers during that year.

The same memo also postpones, for one year, tax reporting duties under Section 6055 of the Internal Revenue Code (relating to minimum essential coverage provided by insurers and self-funded employers), and Section 6056 (relating to minimum essential coverage provided by applicable large employers).

The IRS shortly thereafter published IRS Notice 2013-45 which provides formal transition relief for reporting under Code Sections 6055 and 6056 as well as for employer shared responsibility payments under Code Section 4980H.

The reporting duties under Code Sections 6055 and 6056 have not received nearly the level of attention as the pay or play penalties, but they are onerous.  (The reporting duties have not yet been described in proposed regulations.  What we know of them at this juncture is drawn from IRS Notices 2012-32 and 2012-33, which solicit public comments on the reporting regime.)  The burdensome nature of the reporting duties was the impetus for the Administration to postpone pay or play enforcement, as described below.

  • Code Section 6055 requires insurers, self-funded employers and certain other entities to report to the IRS information that will allow the IRS to track compliance with the individual mandate (individual shared responsibility duties).  The individual mandate requires individuals to obtain “minimum essential coverage” in 2014 and subsequent, or pay a penalty.  In addition to reporting to the IRS, providers of minimum essential coverage must provide individuals receiving the coverage with an annual written report that documents their compliance with the coverage requirement.  Reporting for coverage provided in 2014 was originally first required to be filed in 2015.  Once proposed reporting regulations issue later this summer, reporting likely will not be required until 2016 (for coverage provided in 2015).  However, the Treasury memo and IRS Notice 2013-45 both state that Treasury strongly will encourages voluntary compliance with reporting duties during 2014.
  • Code Section 6056 reporting will provide information to the IRS on compliance, by applicable large employers, with the employer shared responsibility/pay or play requirements.   It includes not only reporting to the IRS on the terms and conditions of coverage the employer offers to full-time employees, but also an annual written disclosure to full-time employees summarizing the information provided to the IRS.

These expansive reporting duties – and the significant administrative and other costs they will impose on employers –  generated considerable concern in the business community.  In the process of negotiating these issues with the Administration it apparently became clear that further work was needed to streamline and simplify the reporting process, and that without Treasury’s access to the information due to be reported in 2014, implementation of the pay or play penalty regime was unworkable.

The Treasury memo states that formal guidance describing the transition relief for tax reporting, and shared responsibility payments, will be published in the next week.  (And was published in the form of IRS Notice 2013-45).  It also states that more guidance on tax reporting duties will be published in the summer, after a “dialogue with stakeholders,” including employers already providing full-time employees with adequate coverage, that hopefully will result in some simplification if not reduction in the scope of reporting duties.  As mentioned, IRS Notice 2013-45 states that, once reporting guidance issues later this summer, voluntary compliance with reporting duties by self-funded employers, insurers, and applicable large employers is strongly encouraged.  It also clarifies that no other aspects of the Affordable Care Act will be affected by the delay, including individuals’ ability to obtain premium tax credit and other financial aid on the health care exchanges.

Although the memorandum is silent on the state of health exchange readiness (or, more accurately, non-readiness) across the nation, the decision to postpone pay or play penalties may result in some part from concerns about exchange implementation delays, particularly with regard to the 34 states that will either default to a federally-facilited exchange, or will partner with the federal government to establish an exchange.  Anemic carrier involvement in the exchanges may also be a factor.

It is too early to assess the full impact of the enforcement and reporting delay, but one possibility is that it will afford applicable large employers a opportunity to observe, in 2014, the degree to which employees not currently offered coverage seek exchange coverage, and qualify for premium tax credits and cost-sharing.  (The exchanges are supposed to report to applicable large employers when full-time employees qualify for financial aid starting in 2014, but it is not clear whether this can occur while employer and carrier reporting duties are suspended).  Employers may also anecdotally be able to observe the degree to which its non-benefited workforce obtains expanded Medicaid coverage, in those states that offer it beginning in 2014.  As a consequence the delay may allow applicable large employers to better design and tailor their health insurance coverage offerings, in 2015 and subsequent, to those full-time employees for whom employer-sponsored coverage is the best fit.

We will be posting updates as further guidance related to this significant ACA development becomes available.


“Applicable large employer” means an employer that employed, on business days during the preceding calendar year, an average of at least 50 full-time employees, including full-time equivalent employees.  Full-time employee means someone working at least 30 hours per week or 130 per month.  (Sole proprietors, partners in a partnership, 2% or more S-corporation shareholder, and “leased employees” as defined in IRC Section 414(n) are not counted.)  Full-time equivalent employees are hypothetical employees counted by totaling all non-full-time employee hours worked per month (but crediting no one employee with more than 120 hours for the month), and dividing the total by 120.)

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