The HR Workplace Services (HRWS) Advisory and Compliance teams have been inundated with calls and emails from our insurance brokerage partners and their clients, regarding ACA penalty letters (coming from the IRS). Each letter representing thousands to hundreds of thousands of dollars from one employer to the next. And rather than slowing down, the pace of penalty letters looks set to increase substantially.
The IRS has upgraded technology and agent support in order to ramp up efforts to assess non-compliance penalties for the ACA employer mandate (Employer Shared Responsibility Payment, or ESRP).
ACA Statistics:
- IRS data shows about 1 in 6 Applicable Large Employers are currently at risk for compliance action.
- 300,000+ ALE’s identified by the IRS in the 2015 tax year reporting
- 30,000+ ESRP Letter 226Js sent out to ALEs for 2015.
- $4.5B in “ESRP” penalties for 2015, alone.
- $228B+ ESRP penalties expected by 2026.
- $2.5+ million IRS investment dollars put toward enforcement
- Reports digitally cross- referenced by IRS to identify compliance issues (W2s, 5500s, 1040s and others).
- June 2019, the IRS began sending Letters 226J for proposed 2017 ESRP penalties.
- IRS increasing efforts to identify potential non-filers via Letter 5699.
Statistical data provided by Treasury Inspector General’s Tax Administration (TIGTA)
Ramifications of IRS Involvement
There are Two Types of Letter 226J Penalties:
- 4980(h)(a) Penalty: $2,500 (2019)
- 4980(h)(b) Penalty $3,750 (2019)
And for employers implicated in 1095 form filings:
- Failure to File – 6721 Penalty: $270/per form
- Failure to Furnish – 6722 Penalty: $270/per form
6 Steps to Take if Your Organization Receives a Penalty Letter
As the IRS escalates enforcement efforts, more employers will receive an ESRP Penalty Letter. Here’s what to do if you receive one:
Before You Act
Step 1: Understand that you (employer) only have 30 days to respond (from date letter was sent by IRS).
Step 2: A single, 30-day extension may be requested.
Taking Formal Action
Step 3: Carefully review all Letter 226J details in order to fully understand what the IRS is claiming.
Step 4: Verify that the information reported was accurate for each employee listed in the letter’s Premium Tax Credit (PTC) table. If it is not, make necessary changes as described in letter’s instructions.
Step 5: Verify that compliant offers of coverage were offered to the employees listed in the PTC table and begin collecting the necessary supporting documentation.
Step 6: Complete Form 14764
and attach any documentation/ statements countering the IRS claims (if organization disagrees with proposed penalty)
DO NOT Ignore a Letter
Failing to respond in the 30-day window will assuredly make matters worse. Parties failing to respond within this time frame may concede their right to counter the proposed penalty or even negotiate.
Speak to an Expert
HR Workplace Services Inc. partners with the nation’s top insurance brokers and agencies providing their clients with best-in-class services and support for HR concerns, compliance and technology. HRWS operates in all 50 States and in over 25 different countries, serving organizations from three to 200,000 employees in 545 SIC Codes.
If you have questions about HRWS, call us directly or ask your insurance broker about us.
*Be advised that the information contained in this article is intended for educational purposes and to provide a general understanding of the law, not to provide specific legal advice.