With another year soon drawing to a close, we have two years of employer shared responsibility reporting, aka 1094/1095 filings, under our belt. As a reminder, the employer shared responsibility mandates of the Affordable Care Act generally apply to employers that employ 50 or more full-time employees and these employers are referred to as applicable large employers (“ALE”). ALEs could be liable for an employer shared responsibility payment (“ESRP”) if at least 1 full-time employee was allowed a premium tax credit because the ALE did not offer minimum essential coverage (“MEC”) to at least 95% of its full-time employees OR if the ALE did offer MEC, but the coverage was deemed to be unaffordable or did not provide minimum value.
The IRS recently provided further details relating to enforcement of the employer shared responsibility mandates. Specifically, the Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act were updated as recently as November 8, 2017. Among other things relating to employer shared responsibility, these updates provide more detail than has previously been provided with regard to how employers will be notified of proposed ESRPs and what that process looks like. These updates are a strong signal that employer mandate penalties are forthcoming.
So, what happens if the IRS determines an ALE may be liable for an ESRP?
In a nutshell, the IRS will send a letter (Letter 226J) to an ALE in response to an employee(s) enrolling in a qualified exchange health plan for which a premium tax credit was awarded to the employee (“Assessable Employee”). The letter will then walk through the proposed payment amount that the ALE owes, who the Assessable Employee(s) is/are, what the ALE must do in response to the letter and, if applicable, how the ALE appeals the proposed payment. The letter also sprinkles in explanations of Section 4980(h) to tie the steps of the process back to the actual law.
One of the attachments to Letter 226J is Form 14765, Employee Premium Tax Credit (“PTC”) Listing, which lists the Assessable Employee(s), by month, along with the indicator codes, if any, that the ALE reported on lines 14 and 16 of the respective employees’ Form 1095-C. This could be helpful if the ALE is trying to tie the ESRP back to the Form 1095-C that was filed for each Assessable Employee and confirming what was reported.
Note, even if an ALE does not dispute the ESRP, the ALE must respond to the letter by returning Form 14764 (included as an attachment to Letter 226J) identifying whether they agree or disagree with the proposed payment. If in agreement, there are payment instructions. If disagreeing with the ESRP, there are additional items to be returned with the Form 14764 documenting the nature of the disagreement. If the IRS does not receive a response, they will send a Notice and Demand for the ESRP and the ESRP will be subject to IRS lien and levy enforcement actions and interest will accrue.
If you receive a Letter 226J you should carefully review the information and determine if you are in agreement with the proposed ESRP. Then you need to respond accordingly and by the response date listed on your letter.
- If you do agree with the proposed ESRP, respond to Letter 226J by returning Form 14764 along with payment for the full amount owed. If alternant payment options are desired, you will need to consult Publication 594 or call the telephone number that will be included on your Letter 226J.
- If you do NOT agree with the proposed ESRP, respond to Letter 226J by returning Form 14764 along with a signed statement explaining why you disagree with part or all of the proposed ESRP. Letter 226J also includes additional information relating to documentation to support your statement.
According to the FAQs, the IRS plans to issue Letter 226J for the 2015 calendar year, informing ALEs of their potential liability for an employer shared responsibility payment, if any, in late 2017.
The IRS also has a webpage entitled Understanding Your Letter 226J which may provide additional assistance.