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Health Care Reform: IRS Transitional Relief Delays Pay or Play Reporting and Penalties

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July 2013

As we reported in an alert on July 3, the IRS has provided transitional relief to employers that delays pay or play reporting and penalties until 2015. Pay or play reporting obligations (and for many employers, at least some penalties) were set to take effect in 2014 pursuant to the Affordable Care Act. Many employers have struggled with administrative details, recordkeeping, and other tasks necessary to comply with the pay or play rules, and the IRS’s transitional relief is intended to allow the IRS to have time to simplify informational reporting requirements. The delay is also intended to provide employers additional time to adapt their health coverage to comply with the law. The IRS provided additional detail on the delay in Notice 2013-45. The IRS indicated that pay or play will be “fully effective for 2015.” Further, the IRS stated that individual shared responsibility rules and premium tax credits (for taxpayers) will still be effective in 2014.

Even though reporting and penalties will not be effective in 2014, the IRS indicated that employers should still engage in real-world testing of reporting systems and plan designs to ensure a smoother transition to full implementation in 2015. This advice is sound, as the tasks of tracking hours and eligibility, determining potential penalties, and potentially restructuring plan designs and employee contributions to avoid penalties require careful attention and perhaps some trial and error. At least in 2014, errors will be penalty free. 

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