Most holiday seasons a new "it" gift emerges. Children (and some adults) in years past have gone to great lengths to get their hands on things like Pet Rocks (1975), Cabbage Patch dolls (1983), Tickle Me Elmo (1996), Zhu Zhu Pets (2007), to the latest gaming consoles and iEverything. This year, some large employers may receive something in the mail that no one would EVER wish for — a new type of penalty assessment from the IRS, known as an Employer Shared Responsibility Payment (ESRP) Letter 226J.
Letter 226J is the first step in the employer mandate enforcement process. The employer shared responsibility provision is the part of the Affordable Care Act (ACA) which requires employers with 50 or more full-time employees, including full-time equivalent employees, to provide affordable health coverage that provides minimum value to at least 70 percent of full-time employees in tax year 2015 or pay a penalty.
As early as November 3, 2017, the IRS started mailing Employer Shared Responsibility Payment (ESRP) Letter 226J and several attachments to applicable large employers (ALEs) that may owe an ESRP for one or more months in tax year 2015. In addition to Letter 226J, employers will receive Form 14764 (Employer Shared Responsibility Payment Response) and Form 14765 (Employee Premium Tax Credit (PTC) Listing). The IRS has posted samples of Letter 226J, Form 14764 and Form 14765 on their website.
The IRS is mailing these letters on a rolling basis. What you'll find either in the letter or included with the letter:
-A Response Date which provides employers with 30 days in which to submit a response to the IRS either agreeing or disagreeing with the ESRP. Given this short response time frame, you need to be on the lookout for these letters and be prepared to quickly research and respond to the information the IRS provides.
-The contact information for the responsible IRS agent also appears on the first page of Letter 226J.
-An explanation of the employer shared responsibility provisions
-An ESRP Summary Table itemizing the proposed ESRP by month
-Form 14764, ESRP Response, for responding to the IRS and indicating whether you agree or disagree with the proposed ESRP
-Form 14765, Employee PTC listing, and specific instructions for making changes to the PTC listing
Employers should plan on responding to Letter 226J by the specified Response Date or reaching out to the IRS to request additional time to respond. The IRS lists a telephone number to call if the employer needs additional time to respond (at the top of Form 14764).
The letter outlines the specific steps an employer needs to take in either agreeing or disagreeing with the preliminary assessment that the employer owes a penalty. The letter is not an actual bill or invoice from the IRS. The IRS provides employers with the opportunity to correct previously submitted Form 1095-C codes and to submit a written explanation as well as supporting documentation. Employers should carefully read the Letter 226J, all attachments, and refer to the penalty assessment information provided on the IRS website in order to determine an appropriate response.
So now that you know what you DON'T wish for your organization this holiday season, at the very least you're prepared to anticipate and respond in an educated and timely manner.
For additional articles on this topic, please visit:
IRS Affordable Care Act Penalties- They're Coming!
ACA Penalty Assessments Are Coming: What Finance Leaders Should Know
ACA Penalties and How to Avoid Them
There's more to ACA compliance than responding to these penalties. Click here to learn more.