It’s official. The IRS has finally begun the process of collecting penalties under the Affordable Care Act’s (“ACA”) employer shared responsibility provisions, better known as the “employer mandate.” The IRS has started mailing out letters to employers that potentially owe an employer shared responsibility payment (“ESRP”) for the 2015 calendar year. These letters follow the format of the IRS’s recently released template letter, Letter 226-J. The letter outlines the IRS’s preliminary calculation of the ESRP owed by the employer based on information contained in the ACA tax forms filed by the employer and the individual income tax returns filed by employees.
If you receive Letter 226-J from the IRS, you will need to act very quickly to either submit payment or dispute the preliminary calculation. The IRS is allowing 30 days from the date of the letter (not the date the letter is received) for the employer to object to the preliminary determination, explain the basis for the objection, and submit supporting documentation. Employers will have the opportunity to request a conference with the IRS prior to the 30-day response deadline. Failure to respond within 30 days (either by paying or objecting to the preliminary determination) will result in a Notice and Demand from the IRS demanding full payment of the ESRP, subject to interest and lien enforcement.
Effective January 1, 2015, many employers became subject to the ACA’s employer mandate, which requires covered employers to offer affordable health coverage to their full-time employees (generally, those working 30 or more hours per week) or potentially be subject to an ESRP. An employer will only owe an ESRP if a full-time employee received a premium tax credit for insurance coverage purchased through a marketplace and the employer failed to offer that employee affordable health coverage. Employers report their offers of coverage through IRS Forms 1094-C and 1095-C. The IRS will use that information, along with information on employees that received a marketplace insurance premium tax credit, to determine whether an employer may be liable for an ESRP.