On April 10, 2025, a federal district court in the Northern District of Texas (the “Court”), ruled in Faulk v. U.S. Department of Health and Human Services (HHS) that the plaintiff, Faulk Company Inc. (“Faulk”), was due a refund by the Internal Revenue Service (IRS) for an Employer Shared Responsibility Payment (ESRP) paid under protest. The Court ruled that the penalty was not enforceable against Faulk due to a procedural error by HHS and the IRS under the Affordable Care Act (ACA). The Court’s decision is binding only with respect to Faulk.
HHS filed a notice of its intent to appeal with the Fifth Circuit (the “Fifth Circuit”) on June 20, 2025. There has been no other action to date, although we expect the Fifth Circuit will review the case. The Court and Fifth Circuit did not issue injunctions halting the ESRP assessment process, so employers should continue to address ACA employer mandate penalty notices received from the IRS.
This alert covers the issues involved in the Faulk decision as well as potential implications for employers. This alert is most relevant for large employers who are or were subject to the ACA’s employer mandate penalties.
