IRS Limited Non-Assessment Periods Help Avoid ACA Penalties
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The responsibilities under the ACA’s Employer Mandate may seem straightforward, but, in reality, complying with them can be challenging and time-consuming.
An area that many Applicable Large Employers (ALEs) struggle with is knowing when they have to extend an offer of coverage to a full-time employee. Fortunately, the IRS provides grace periods to prevent penalty assessments on employers that don’t immediately extend an offer of coverage to full-time employees. The IRS calls these grace periods Limited Non-Assessment Periods.
A Limited Non-Assessment Period, according to the IRS, “generally refers to a period during which an ALE Member will not be subject to an assessable payment under section 4980H(a), and in certain cases section 4980H(b), for a full-time employee, regardless of whether that employee is offered health coverage during that period.”
So, it’s important to understand Limited Non-Assessment Periods. They could help your organization avoid penalty assessments from the IRS.
Below we’ve identified the six different scenarios for claiming a Limited Non-Assessment Period.
1. First-year ALE period. The first example involves a scenario where it’s the first year an organization meets ALE status. For the first calendar year an employer is an ALE, January through March qualify for Limited Non-Assessment Periods, but only for employees who didn’t receive an offer of health coverage at any point during the prior calendar year.
This rule applies only during the first year that an employer is an ALE. It does not apply if, for example, the employer falls below the 50 full-time employee threshold for a subsequent calendar year and then increases employment and becomes an ALE again.
2. The Monthly Measurement Method waiting period. The next scenario involves the application of the Monthly Measurement Method. If an ALE uses the Monthly Measurement Method to determine whether an employee is a full-time employee, it may claim a Limited Non-Assessment Period for the beginning of the first full calendar month in which the employee is first otherwise (but for completion of the waiting period) eligible for an offer of health coverage.
An employer can continue to claim the non-assessment period for no later than two full calendar months after the end of the first calendar month.
3. The Look-Back Measurement Method waiting period. If an ALE is using the Look-Back Measurement Method to determine whether an employee is a full-time employee and the employee is reasonably expected to be a full-time employee at his or her start date, the period beginning on the employee’s start date and ending no later than the end of the employee’s third full calendar month of employment can be claimed as a Limited Non-Assessment Period.
4. The Look-Back Measurement Method Initial measurement and associated administrative periods. If an ALE is using the Look-Back Measurement Method to determine if a new employee is full-time, and the employee is a variable hour employee, seasonal employee, or part-time employee, the initial measurement period for that employee and the administrative period immediately following the end of that initial measurement period qualify as a Limited Non-Assessment Period.
5. The period following a change in status that occurs during the initial measurement period under the Look-Back Measurement Method. If an ALE is using the Look-Back Measurement Method to determine whether a new employee is ACA full-time, and, as of the employee’s start date, the employee is a variable hour employee, seasonal employee, or part-time employee, but, during the initial measurement period, experiences a change in employment status such that, if the employee had begun employment in the new position or status, the employee would have reasonably been expected to be a full-time employee, the period beginning on the date of the employee’s change in employment status and ending no later than the end of the third full calendar month following the change in employment status qualifies as a Limited Non-Assessment Period.
If the employee is a full-time employee based on the initial measurement period and the associated stability period starts sooner than the end of the third full calendar month following the change in employment status, the Limited Non-Assessment Period would end on the day before the first day of that associated stability period.
6. First calendar month of employment. If the employee’s first day of employment is a day other than the first day of the calendar month, then the employee’s first calendar month of employment qualifies as a Limited Non-Assessment Period.
Want more information? You can find more on the requirements of Limited Non-Assessment Periods in the Federal Register, Volume 79, No. 29.
Organizations code Limited Non-Assessment Periods on Line 16 of the 1095-C, so it’s important to make sure you are applying them correctly. Failing to do so could result in 4980H penalties via IRS Letter 226J.
As a reminder, under the ACA’s Employer Mandate, employers with 50 or more full-time employees and full-time equivalent employees or ALEs must:
- Offer Minimum Essential Coverage (MEC) to at least 95% of their full-time employees (and their dependents) whereby such coverage meets Minimum Value (MV); and
- Ensure that the coverage for the full-time employee is affordable based on one of the IRS-approved methods for calculating affordability.
If you’re interested in learning more about Limited Non-Assessment Periods, and specifically how to code them on the annual 1095-C forms, download the Employer’s Guide to Coding ACA Form 1095-C below.
For information on ACA penalty amounts, affordability percentages, important filing deadlines, steps for responding to penalty notices, and best practices for minimizing IRS penalty risk, download the ACA 101 Toolkit.
