Coming Soon: ACA Employer Mandate Penalty Notices

 November 17 2017     Diane Cross

Employers who were Applicable Large Employers (ALEs) for 2015 should be on the lookout for an Employer Shared Responsibility Penalty (ESRP) letter from the IRS before the New Year.  Under the Affordable Care Act (ACA), ALEs are required to pay a penalty if they fail to offer health coverage meeting minimum requirements to at least 95 percent (70 percent in 2015) of their full-time employees and their dependents.  These rules were delayed until 2015, and the IRS is now beginning to assess such penalties for 2015.  

Recently, the IRS updated Questions 55-58 of the Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act, Making an Employer Shared Responsibility Payment, providing guidance on the employer mandate penalties that are about to be enforced.  The IRS explains that it will use Letter 226J to propose and assess employer shared responsibility penalties, if any.  Only ALEs believed to owe penalties for not complying in 2015 will receive Letter 226J. 

Who are ALEs?

As a reminder, only employers with 100 or more full-time employees (including full-time equivalents) were considered ALEs for 2015 due to special transition relief.  Employers with 50-99 full-time employees were not considered ALEs until 2016. 

Who Owes a Penalty?

Whether an ALE owes a penalty will be based on the reported information from the ALE’s Forms 1094-C and 1095-C (and information from the IRS indicating which full-time employees received a premium tax credit).   

Overview of the Process

  • The IRS will send employers Letter 226J if there is a proposed penalty, which will include instructions on how to respond.  ALEs will then generally have 30 days to respond to Letter 226J before any penalties are formally assessed by the IRS.  If an ALE fails to respond, the IRS will assess the amount of the proposed penalty and issue a notice and demand for payment, Notice CP 220J. 
  • If employers disagree with the IRS’s penalty determination, they can respond and challenge proposed penalties by submitting a statement and supporting documentation (including any changes the ALE would like to make to the information reported) before such penalties would be assessed.  The IRS notes that an ALE should follow the steps as outlined in the letter to correct any information on the Forms 1094-C or 1095-C rather than filing corrected forms.  
  • After responding to Letter 226J, the IRS will send Letter 227 which will provide information regarding any further actions the ALE may need to take with respect to the proposed penalty – including how to make a payment (if any).  If the ALE still disagrees with the proposed penalty, the ALE can request a pre-assessment conference with the IRS Office of Appeals.

Action Items for ALEs

With a 30-day response time, there is little room for error.  The IRS plans to issue Letter 226J “in late 2017”. Employers should be on the lookout for any correspondence from the IRS and have the Forms 1094-C and 1095-C that were filed in 2015 accessible. Contact your HORAN representative with any questions.