- Posted by Jessica Waltman
- On December 15, 2017
The Internal Revenue Service has begun enforcing the employer mandate for the 2015 tax year by sending Letter 226J to tens of thousands of applicable large employers. Here are 10 things employers need to keep in mind if your company has received a Letter 226J already, or you think that one might be on its way.
- Keep a careful watch on the mail. The letters are being sent to the contact person a company listed on its 2015 Form 1094C/1095C filing with the IRS, which was done back in 2016. It is possible that individual is no longer the correct contact person for your company, so make sure no official correspondence from the IRS is languishing in the mailroom or on someone’s desk.
- Read the letter and all enclosed documents carefully. If you receive a Letter 226J from the IRS, it will explain the employer mandate. It will also cover how the IRS used information gained from the Forms 1094C/1095C your company provided to the IRS as well as information from individual tax returns of your full-time employees to see if employees received a premium tax credit subsidy and to calculate your proposed penalty amount. The enclosed Form 14765 will include information about the employees that triggered the penalty and how your company reported their coverage information to the IRS for the tax year 2015. Your letter also will explain the steps to take if you agree or disagree with the proposed penalty computation.
- Know that receipt of a letter doesn’t necessarily mean a company will ultimately pay the penalty. Even businesses that were fully compliant with the employer mandate may receive enforcement communications from the IRS, and the agency expects that many initial assessment notices will contain errors. Letter 226J is just a proposed assessment notice and does not mean the employer automatically will have to pay the penalty; there will be a chance for every employer to disagree with the initial notice and then also to appeal if a company still disagrees with the IRS’s response.
- Get your records and documentation together. If you have received a Letter 226J already, or think that one might be on its way, the most useful thing to do is to ready all of your documentation from the 2015 information reporting cycle (Form 1094C/1095C reporting that was filed with the IRS and distributed to employees in the spring of 2016). Documentation includes all copies of forms submitted to the IRS and distributed to employees, as well as relevant payroll records and signed waivers of coverage if applicable. Additionally, if your business was eligible for transition relief, then all documentation of eligibility should be gathered.
- Contact your Kistler Tiffany Benefits consultant right away. If your company receives a Letter 226J, please reach out to Kistler Tiffany Benefits so that we can review it with you and help you gather the appropriate information that you may need to respond to the IRS.
- Utilize your resources and the IRS website. In addition to contacting Kistler Tiffany Benefits, employers should reach out to any Form 1094/1095 reporting vendor utilized for support and documentation assistance. Also, employers should consider reaching out to their independent tax professionals or legal counsel for help. Finally, the IRS website has useful resources online for employers preparing responses to Form 226J.
- Watch the deadlines. Employers will have 30 days from the date on their Letter 226J to respond to the IRS. If your company does not reply in time, then you will lose your chance to appeal and the IRS will follow up with a written demand for payment, Notice CP 220J.
- Be mindful of transition relief, coverage waivers and potential errors in your original coding. The first year of ACA compliance was tricky with different types of transition relief and vague instructions from the IRS on Form 1094/1095C coding, so it is entirely possible that a company’s 1094C/1095C filings contained inadvertent mistakes. Problems in any of these areas could trigger a Letter 226J, but you can address all of these issues in your response to the IRS.
- Provide an organized, timely and comprehensive response. It is essential to provide a thorough and professional response back to the IRS. A strong response will include a letter explaining your concerns with the proposed assessment, making any coding corrections on the Form 14765 provided to you, providing copies of relevant documentation like payroll records and employee coverage waivers to support your case and explanations about the documentation you have provided. Take care to submit your response exactly as requested and in a timely fashion, and keep copies of everything you send to have on hand for potential follow up communications.
- Be prepared for more communication with the IRS. All employers that reply to the IRS objecting to their proposed assessment in a timely fashion will receive a written response back from the IRS describing further actions they may need to take. If the employer still disagrees with the IRS, then the company may request a pre-assessment conference with the IRS Office of Appeals.
By Jessica Waltman, Special Contributor
Jessica Waltman is a health reform strategist, with more than 20 years of experience in health insurance markets and health policy. She is the former Senior Vice President, Government Affairs, for the National Association of Health Underwriters.