By Barry Fields, Vice President – Employee Benefits
The Internal Revenue Service (IRS) has begun to notify employers via a letter (Letter 226J) containing several attachments that a company may owe a penalty for failing to comply with the employer mandate requirements for the 2015 calendar year under the Affordable Care Act (ACA). The letter begins as follows:
“We have made a preliminary calculation of the employer shared responsibility payment (esrp) that you owe.”
If you receive such a letter, don’t panic! This is just the first step in assessing an employer mandate penalty. The IRS’s determination of whether an employer may be liable for a penalty and the amount of the potential payment is based on information reported to the IRS on Forms 1094-C and 1095-C for 2015 (filed in early 2016) and the IRS’s records of whom received a premium tax credit. If the IRS determines that, for at least one month in the year, one or more of the employer’s full-time employees received a premium tax credit and the employer did not satisfy the offer-of-coverage rules, Letter 226J will be mailed to the employer. It will include:
- a brief explanation of the employer mandate provisions;
- a summary table itemizing the proposed payment by month and indicating whether liability applies for each month and, if so, whether it’s for the A penalty or the B penalty;
- an explanation of the summary table;
- a response form (Form 14764: ESRP Response);
- an employee premium tax credit listing (Form 14765: Employee Premium Tax Credit[PTC] Listing) which lists, by month, the employees who received a PTC that triggered the letter;
- the actions the employer should take if it agrees or disagrees with the proposed penalty; and
- the actions the IRS will take if the employer does not respond in a timely manner.
greatest concern about the employer mandate is an employee who waives your coverage and receives a subsidized individual policy from the Marketplace Exchange when the employee was not entitled to one. Since we believe this is a common mistake, do not panic. It will take some effort to avoid the penalty, but in the end, you are safe if the medical program offered by your company met the “Minimum Value” and the “Affordability” requirements for all full-time employees.