Special Post: ACA Penalty Letters –What to do?

Read your Letter Carefully and Respond Immediately

The Internal Revenue Service (IRS) has announced that it will begin mailing employers letters informing them of their potential liability (Employer Shared Responsibility Payment) for a “pay or play” penalty for the 2015 calendar year in late 2017.  Before any penalty is assessed and demand for payment is made, employers will have a small window of time to respond to their letter.  If no response is given, the penalty will be determined and given without your input, disputes, or changes – so open the letter immediately and review the contents carefully.

Who will receive the letter?

The Letter 226J is the preliminary letter issued to applicable large employers (ALEs) informing them they may be liable for the Employer Shared Responsibility Payment (ESRP).  Who receives a letter is based on the information from your filed 1094-C and 1095-C and your employee’s individual tax returns.

An ALE is—generally those with at least 50 full-time employees, including full-time equivalent employees, on average during the prior year—if it determines that, for at least one month in the year, one or more of the ALE’s full-time employees was enrolled in a qualified health plan for which a premium tax credit was allowed (and the ALE did not qualify for an affordability safe harbor or other relief for the employee).

What Will the Letter Contain?

Letter 226J will include, among other things:

  • A penalty payment summary table, itemizing the proposed payment by month;
  • An “employee premium tax credit list” which lists, by month, the ALE’s employees who for at least one month in the year were full-time employees allowed a premium tax credit and for whom the ALE did not qualify for an affordability safe harbor or other relief;
  • A description of the actions the ALE should take if it agrees or disagrees with the proposed penalty payment; and
  • Form 14764, a response form.

The response to Letter 226J will be due by the response date shown on the letter, which generally will be 30 days from the date of Letter 226J. Letter 226J will also contain the name and contact information of a specific IRS employee that the ALE should contact if the ALE has questions about the letter.

How do I respond?

After reading through all of the information provided in your letter, you can either agree with the penalty, or disagree and provide any information to prove your claim.

If any of the information provided seems incorrect, the best thing to do is review copies of your 1094-C and 1095-C to confirm.  You will need to provide changes to the IRS, which you can do by following the instructions in your letter by indicating changes on Form 14764.

How Does an ALE Make a Penalty Payment?

If, after correspondence between the ALE and the IRS, the IRS determines that an ALE is liable for a penalty payment, the IRS will assess the payment and issue a notice and demand for payment, Notice CP 220J. That notice will instruct the ALE on how to make a payment, if any. Notably, ALEs will not be required to include the payment on any tax return that they file or to make a payment before notice and demand for payment.

Click here for more information from the IRS.

If you have any questions regarding this letter or your plans, please let Journey know.  We can assist you, or connect you to a trusted Health Insurance Broker that we trust will take care of your needs.

 

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