ACA – Pay or Play Enforcement has arrived
As we reported in our 2nd Quarter Newsletter, the IRS has indicated it would notify applicable large employers (ALEs) in 2017 of their potential penalties for failing to comply with the employer shared responsibility mandate, for the 2015 calendar year. With the numerous attempts this year to repeal or replace the ACA, ALEs may have thought ACA penalties would never come to fruition, unfortunately that’s not the case.
On Nov. 2, 2017, the Internal Revenue Service (IRS) updated its Questions and Answers (Q&As) on the employer shared responsibility rules under the Affordable Care Act (ACA) to include information on enforcement. These Q&As indicate that, for the 2015 calendar year, the IRS plans to issue Letter 226J informing ALEs of their potential liability for an employer shared responsibility penalty, if any, in late 2017.
The general procedures the IRS will use to propose and assess the employer shared responsibility penalties are described in the letter. The IRS will issue a letter to an ALE if it determines that, for at least one month in the year, one or more of the ALE’s full-time employees was enrolled in a qualified health plan for which a premium tax credit was allowed (and the ALE did not qualify for an affordability safe harbor or other relief for the employee).
An ALE will generally have 30 days from the date on the Letter 226J to respond before any employer shared responsibility liability is assessed and notice and demand for payment is made. Letter 226J will provide instructions for how an ALE should respond in writing, either agreeing with the proposed employer shared responsibility penalty or disagreeing with part or all of the proposed amount. If an ALE does not respond within the 30-day time frame, the IRS will assess the amount of the proposed employer mandate penalty and issue a notice and demand for payment in the form of a Notice CP 220J. Therefore, any ALE member who receives a Letter 226J must respond in a timely manner.
Once an ALE responds to the Letter 226J, the IRS will reply with one of five different versions of Letter 227. The Letter 227 will be an acknowledgement from the IRS that it received an ALE’s response to the Letter 226J and describe what further action needs to be taken by the ALE. If after receiving Letter 227, an ALE disagrees with the proposed or revised penalty, the ALE may request a pre-assessment conference with the IRS Office of Appeals. A conference must be requested by the response date provided in Letter 227, which will generally be 30 days from the date of Letter 227.
All employers need to be on the lookout for the Letter 226J from the IRS. Even if you believe you are in full compliance with the employer mandate you could still receive a Letter 226J and an accurate and timely response is necessary.
- Maintain complete and accurate records regarding the health insurance coverage offered to employees;
- Become familiar with the procedures outlined in Letter 226J and the appeals process;
- Designate a person or persons responsible for addressing the various IRS letters and notices (Letter 226J, Letter 227 and Notice CP 220J);
- Notify mail room and other applicable staff of the importance of these IRS letters/notices and to whom they should be given upon receipt;
- Put documented procedures in place so that appeals and conference requests are filed within the required 30-day time-frames;
- Consult with an attorney who is familiar with the ACA employer mandate provisions, as well as Forms 1094-C and 1095-C.
Links to additional information and resources:
- Understanding Your Letter 226J
- Publication 5, Your Appeal Rights and How To Prepare a Protest if You Don’t Agree
- Publication 594, The IRS Collection Process
NOTE – Letter 226J is separate from the Section 1411 Certifications that are sent by the Department of Health and Human Services (HHS). The Section 1411 Certifications are sent to ALL employers with employees who receive a subsidy to purchase coverage through an Exchange (including both ALEs and non-ALEs).