Since 2015, the Affordable Care Act has required Applicable Large Employers (ALEs) to file forms 1094-C and 1095-C with the IRS. Generally, these forms are used by employers to report healthcare coverage compliance to both the IRS and their employees. Upon receipt, the IRS reviews these forms to determine whether or not the submitting employer has complied with various healthcare coverage-related mandates of the Affordable Care Act.
Recently, the IRS has begun sending out Employer Shared Responsibility Penalty Notices to these ALEs. These notices are known as Letter 226-J and are sent to notify employers that the IRS has determined that the recipient is liable for an Employer Shared Responsibility Payment (ESRP) to the IRS. Liability for ESRPs is based on the affordability and “minimum value” of coverage offered by employers to their full-time employees. If the coverage offered by an employer does not meet these affordability and minimum value requirements, they are liable to the IRS for an ESRP.
Receiving a Letter 226-J is not a final determination of liability. The IRS recommends steps for employers who have received a Letter 226-J. First, review the letter carefully. The letter will explain exactly what figures from forms 1094-C and 1095-C were used to determine ESRP liability. This is an opportunity for the employer to check the figures used by the IRS against their own records. If the employer identifies inaccurate calculations, they must complete Form 1764 and Form 14765, indicating disagreement with the determination of liability. Employers must return both forms complete with documentation explaining their disagreement and what changes need to be made to the calculations.
If the employer reviews the letter and determines that the calculation is accurate, they must complete Form 14764 and submit it with full payment in the provided envelope.
Employers should note that responses to Letter 226-J are due within 30-days of receipt. However, employers can request additional time to respond using the instructions provided in the letter. Employers may also submit Form 2848, Power of Attorney and Declaration of Representative, to allow someone else to contact the IRS, such as an attorney, on the employer’s behalf.
As always, employers are encouraged to keep careful and organized records of all important tax documents to enable them to properly contest and determination of liability from the IRS.
Please feel free to contact Marc Fishel (mfishel@fisheldowney.com) or Angel Jarmusz (ajarmusz@fisheldowney.com) by email or phone (614) 221-1216 with any questions.