Beware: IRS To Begin Issuing ACA Employer Shared Responsibility Payment Penalty Notices

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The IRS has announced its next steps regarding the Employer Shared Responsibility Payments (the “ESRPs”), which are the ACA penalties assessable to “Applicable Large Employers” for failing to provide affordable health care coverage to eligible full-time employees.

Although the IRS began collecting information from employers (via the Form 1095-Cs) beginning with the 2015 calendar year, it has not yet assessed any of the ESRP “play-or-pay” penalties.  The new announcement forewarns that the IRS is gearing up for the penalty collection program. The announcement states that notices for penalties pertaining to 2015 will begin being issued in “late 2017.”

The IRS has also released a sample of the penalty notice (Letter 226J). The letter gives notice of a tentative penalty assessment for each non-exempt full-time employee who received a premium tax credit for health insurance coverage purchased on a state or federal Marketplace exchange. 

Because of the complexity of the Form 1095-C program, it is expected that the IRS’s records are not entirely accurate. Consequently, we should assume that a notice will be sent to most employers, with the odds increased for larger employers.

Unfortunately, the deadline for responding to the IRS to challenge its report is very short. Specifically, the appeal must be submitted within 30 days of the date of the penalty notice, and not 30 days from the receipt of the letter. The response date will be printed on the letter.

Because the timeframe for challenging the IRS’s tentative penalty assessment is very short, you may wish to prepare for the inevitable receipt of the notice.  Actions that you should consider taking are outlined below.

  1. Identify to whom the notice will be sent, and alert that person or office to be on the lookout for the notice. Presumably, but not necessarily, it will be sent to the contact person listed in Part 1 of the Form 1094-C transmittal form.
  2. Have copies of the 2015 Form 1095-Cs available to compare with the listings that will be included with the Letter 226J penalty notice.
  3. Alert your Form 1095 vendor that you may need supporting information and reports on a quick turnaround basis.
  4. Assemble a team to review and respond to the notice.

The sample penalty notice letter released by the IRS makes mention of the form to be used in challenging the penalty (Form 14764).  A copy of that specific form has not yet been released. We will review it as soon as it is available.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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