The IRS has begun notifying employers of ESRPs (Employer-Shared Responsibility Payments), otherwise known as ACA penalties. In 2017, they started sending the first letters, letter 226J, to address penalties associated with the 2015 filing year for forms provided to the IRS in 2016.
It is important to provide a timely response to this IRS letter.
Here are some tips to ensure you are well-prepared to respond to letter 226J from the IRS:
- Keep the information related to which employee(s) triggered a penalty a closely-guarded secret. In the event that an employee is terminated, you want to ensure your organization is not potentially subject to retaliatory action.
- The IRS has updated questions 55-58 in the “Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act” on IRS.gov. This will give an overview of how to respond.
- Understand that this is not an assessment … yet. This is a notification of a potential assessment if you fail to respond, or cannot otherwise refute the assessment.
- Engage your attorney, accountant or tax advisor to provide specific guidance for responding to an assessment notification. You will have 30 days to respond to letter 226J.
- Take the time to organize a thoughtful response to the IRS letter. It is best practice to include a cover letter identifying the company for which you are responding, along with a summary of why you are responding. Also, explain the contents of each additional piece of information you are including as well as the reason for inclusion. For example, you may include time and attendance data to demonstrate that an employee did not work the requisite hours necessary to be eligible for insurance. Finally, include all necessary documentation to justify your response.
The Integrity Data ACA Compliance Solution can provide some information to assist in understanding whether an employee is potentially subjecting you to penalty, however, it is not the source system for the information necessary to justify your response. That being said, the following reports included in the solution may be helpful in researching specific ESRP assessments:
- Initial Measurement Report
- Standard Measurement Report
- Stability Measurement Report
- Monthly Hours Breakdown
- 1095-C Coverage Edit Report
- Form 1094-C
- Form 1095-C
In addition, one of our strategic partners, HUB International has put together a helpful blog and FAQ for responding to IRS letter 226J. The important thing to remember is that you have a limited opportunity to respond, so do so timely.