Think back to when you were in college. Did you have that one class that didn't seem important? Maybe it was a requirement for first-year students. Perhaps it was a general education course that just couldn't hold your interest. Yet, when you turned in the final exam, you had a feeling your lack of effort and interest would come back to haunt you. Then, your grade posted, and it haunted your GPA for the next four years!
Meet the 226J letter from the IRS. It is the threat that has haunted businesses who slacked a bit when first filing new ACA requirements. Now the threat is a promise, and that promise is in the mail. Medcom is here to walk you through the 226J letter and its corresponding forms, what they all mean, and, most importantly, what to do if your business receives one from the IRS.
First, let's cover the basics and define the terms that generally accompany the 226J letter:
ALEs: Applicable Large Employers
ESRP: Employer Shared Responsibility Payment
226J Letter: The initial letter issues to ALEs to notify them they may be liable for an ESRP
1095-C: Statement sent to the IRS and ALE employees providing details regarding employees' eligibility for health insurance, the lowest cost premium offered to the employee, and the months of the year when the coverage was available
1094-C: The "cover sheet" for the 1095-C forms that ALEs send to the IRS, which provides information regarding employer address, phone number, EIN, how many employees the business has, contact person, and the number of 1095-C forms attached
Form 14764: This is the response form that ALEs complete to indicate its agreement or disagreement with the penalty amount proposed by the IRS
Form 14765: This form lists all employees who went to the Marketplace and received a subsidy
Form 2848: The Power of Attorney and Declaration of Representative is a form used to authorize an individual or organization to represent a taxpayer before the IRS
What is happening with the 226J letters?
In late 2018, the IRS announced it was beginning to issue 226J letters to inform ALEs of their potential liability for an ESRP for tax-year 2016. The determination of whether an ALE is liable for the ESRP and the amount proposed in the letter is based on information from forms 1094-C and 1095-C submitted for tax-year 2016. If employers did not correctly or fully report their offered employee health insurance to the IRS using the 1094-C and 1095-C forms, they could be subject to a substantial fine from the Internal Revenue Service.
Received a letter? Here's what to do:
Read your documents carefully. To fully comply and respond to the IRS, you must do the following items:
Review your 1094-C and 1095-C documents from 2016
Review the list of employees who used the Marketplace for a subsidy
Review coding of lines 14 and 16
Review your health insurance summary of benefits and coverage
Review coverage offered, hourly rate of pay, Safe Harbor, and W-2 method
Review employment records, e.g., hire date, termination dates, re-hire dates, and any waiting periods of each employee
Complete the response form 14764
If you disagree, you must provide a full explanation and indicate changes needed on Form 14765
If you agree, complete all forms, attach payment, and submit to the IRS
Overwhelmed!?!? Here's how Medcom can help:
Medcom's ACA Full Service Solutions provides ESRP appeal support. Our team offers professionals trained in ACA regulations and who will walk you through the appeal process step-by-step. Our specialists will assist you from receiving your call through writing and sending your company's response. We are with you every step of the way!
Reach out to our sales team to see all the ways we can serve you and your clients.