This year, for the first time, the IRS is beginning to collect penalties from employers who did not comply with the ACA employer mandate - back in 2015. Employers are beginning to receive Letter 226J, stating what they owe for Employer Shared Responsibility Payments (ESRPs).
Whether or not the letter is accurate, you may be left wondering what to do next. Our Chief Counsel, Kelly McMillen, offered these 6 steps to respond effectively and minimize your penalties:
Evaluate how long you'll need to respond to the letter. You only have 30 days to respond to an IRS letter 226J. Depending on whether or not you agree with the IRS' assessment of your liability, you may need more than 30 days to review all of your data. The IRS guidance states that, if you request an extension within the original 30 days, they may grant additional time to respond.
Strategize your response. Responding to letter 226J should not be handled by your HR or benefits departments alone; your chief counsel, CFO, and any internal ACA experts should be part of the conversation. Depending on your organization, it may be a good idea to seek legal counsel or other external experts.
Assess your liability. While the current letters 226J refer to employer shared responsibility payments for the 2015 plan year, the penalty process is not limited to that year or to shared responsibility payments specifically. Work with your internal experts and external resources to ensure you understand the full scope of any shared responsibility payments and other penalties you may owe for 2016 and 2017 as well.
Review your forms 1094-C and 1095-C. If you disagree with the IRS' assessment, it's important to ensure your forms 1094-C and 1095-C are correct. Inaccurate reporting on these forms is the most likely cause of incorrect penalty assessments, as these are the forms the IRS uses to calculate ESRPs. If you need to correct your data on those forms, do not submit a corrected 1094-C to the IRS; you will be able to make changes in your response to the letter.
Respond to the letter. It sounds basic, but it's important to respond to Letter 226J on time, especially if you don't agree with the IRS' judgement. Fill out Form 14764 to indicate whether you agree with the letter. If you agree, you can include your payment with your response. Employers enrolled in the Electronic Federal Tax Payment System can pay that way as well. If you disagree with the IRS' assessment, you will need to provide a full explanation for any discrepancies. This may include corrections to your forms 1094-C and 1095-C or providing missing information. If you believe you submitted accurate forms and disagree with the letter, you may also submit an appeal at this time.
Ensure the IRS confirms receipt of your response. The IRS will respond to submitted forms 14764 with IRS Letter 227, which contains the next steps. If you disputed the Employer Shared Responsibility Payment, this letter may contain a request for more information or a revised penalty amount. If you disagree with this proposed penalty amount as well, you can request a Pre-Assessment Conference with the IRS Office of Appeals within 30 days of the date of Letter 227.
The information provided by benefitexpress is for informational purposes only and is not a substitute for legal and other professional advice. If an employer requires legal advice or other professional assistance regarding the Affordable Care Act, each such employer should always consult its own legal or other professional advisors and discuss the facts and circumstances that apply.
As Chief Counsel at benefitexpress Kelly McMillen handles the company's contract portfolio, compliance and risk management, and supports the legal needs of the functional teams and entire business.
Prior to benefitexpress, Kelly spent 7 years in higher education and healthcare consulting with both Arthur Andersen and the University of Chicago, Booth School of Business, which included roles in program management, business consulting, grant accounting, and staffing analysis. He received his Doctor of Law from DePaul University College of Law and is a graduate of Miami University of Ohio with BA degrees in Economics and Political Science. In his free time, he enjoys playing basketball, watching college football, reading, cooking, and spending time with his family.
Our customers don't need to worry about letters like this. With our ACA services, you're ready to file your required forms to the IRS with a push of a button. If you're mistakenly issued a letter 226J, we've already audited your data for accuracy - appealing the letter is as simple as pulling up the correct forms in our HR Dashboard.
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