Blink and you may have missed it: On November 2, 2017, the Internal Revenue Service (IRS) updated their Questions and Answers page related to the Employer Shared Responsibility provisions of the Affordable Care Act (ACA).
A section titled, “Making an Employer Shared Responsibility Payment,” was added to the aforementioned Q+A Page which includes detailed information regarding how penalties under Internal Revenue Code (IRC) section 4980H will be communicated to employers through Letter 226J, as well as how employers may respond and pay their penalties. Letter 226J will be sent by the IRS in late 2017 to applicable employers.
Per ACA regulations, as provided in IRC sections 4980H(a) and (b), Applicable Large Employers (ALEs) must offer their full-time employees minimum essential health coverage that is affordable and provides minimum value. If an ALE fails to offer appropriate coverage to an eligible employee and one or more eligible employees receives a premium tax credit from the ACA Health Insurance Marketplace, the ALE may be subject to an Employer Shared Responsibility Payment, or as the IRS refers to it, the ESRP.
Although the ACA and its employers shared responsibility provisions have been in effect since Tax Year 2015, no penalties have been assessed. Before this most recent guidance, no formal assessment, response, and collection process existed. However, based on this new information, the IRS will begin assessing ESRPs via Letter 226J before the end of this year.
In its updated guidance, the IRS explains that Letter 226J will describe the procedures the IRS will use to propose and assess the ESRP. The guidance adds: “The IRS plans to issue Letter 226J to an ALE 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).” Liability for and the amount of any potential payments are based on the information that employers report to the IRS on Forms 1094-C and 1095-C and on which full-time employees received premium tax credits through the Marketplace.
As per the IRS, Letter 226J will include:
- An explanation of the employer shared responsibility provisions in Internal Revenue Code (IRC) Section4980H, which are the basis for the ESRP.
- An ESRP Summary Table itemizing your proposed ESRP by month;
- An Explanation of the ESRP Summary Table;
- Form 14764, “ESRP Response”; and
- Form 14765, “Employee Premium Tax Credit (PTC) Listing (Employee PTC Listing)”
- A brief description of the IRS’ actions if the ALE does not respond timely to Letter 226J.
You Received the Letter, What’s Next?
After receiving Letter 226J, employers will have an opportunity to respond prior to the official demand for payment. Letter 226J provides instructions on how an employer should respond to the ESRP or dispute the payment. Responses are due back to the IRS by the “response date” noted on the letter.
Depending on how an employer replies to Letter 226J, the IRS will respond with a corresponding version of Letter 227 that will provide further instructions on how to proceed. At this stage, if an employer still disagrees with the payment, the employer will be able to request a pre-assessment conference with the IRS Office of Appeals. Requests for conferences are will be due by the response date noted on Letter 227.
Avoid the ESRP: If your organization needs support in managing ACA Compliance and Reporting for TY2015, TY2016, or TY2017, please contact us at (508) 655-3307, or send Kim an email at firstname.lastname@example.org. Get started today!