Some employers have been receiving Employer Shared Responsibility (ESRP) 226J letters from the IRS assessing Affordable Care Act penalties. The 226J letter is issued to employers who did not comply with the employer mandate under health care reform. Employers are finding that these letters impose very large penalties, which may or may not be properly assessed.
Employers should respond within the timeframe indicated on the first page of the letter. In preparing for a response, employers should review their 2016 submission data to see if any changes should be communicated to the IRS. Data collection and calculations have often been refined over the past few years and the IRS will accept information correcting previously provided erroneous data. Fixing wrong information may reduce or eliminate proposed penalties.
The ACA employer mandate requires applicable large employers (employers with 50 or more full-time employees or equivalents) to offer affordable, minimum essential coverage providing minimum value to at least 95% of their employees and dependents. If the employer mandate is not satisfied, the employer will be subject to an employer shared responsibility payment.
There are two types of ESRP penalties. The Subsection (a) penalty is assessed if an employer does not offer minimum essential coverage to at least 95% of its full-time employees/dependents and at least one full-time employee receives a premium tax credit to purchase coverage through the Marketplace. If the 95% rule is not satisfied, the employer is assessed a penalty for each month a full-time employee gets a tax credit, based on the total number of the employer’s full-time employees. This penalty can get rather large.
The Subsection (b) penalty is assessed if a full-time employee receives a premium tax credit to purchase coverage through the Marketplace and that employee was not offered coverage, the coverage was not affordable, or the coverage did not meet minimum value. A subsection (b) penalty is typically smaller than a subsection (a) penalty.
Responding to a 226J letter in a timely manner is essential. Gather information and carefully prepare your response. Don’t hesitate to correct information previously provided to the IRS and make sure to identify the reasons you think a penalty is not properly assessed.
BAS can help with Affordable Care Act data collection and reporting. For more information, contact your account manager or solutions@BASusa.com.
