As IRS Sends out Enforcement Letters, Be Prepared
Even though the Trump administration continues taking steps to try to dismantle the Affordable Care Act, the law applies to employers and the IRS is enforcing it by the book.
Businesses are increasingly receiving IRS Letter 226J, which states that they may be in violation of the employer mandate, typically by either not offering coverage when they are legally required to do so or not offering “affordable” coverage to their employees.
Under the law, employers with 50 or more full-time workers must offer coverage to their employees that covers the 10 essential minimum benefits and which will cost each employee no more than 9.56% of their earnings.
Employers are also being targeted for not filing the required ACA-related forms (1094-C and 1095-C), or filing them late. These forms are a crucial part of the equation and you should strive to make sure they are accurate to avoid being surprised by a letter from the IRS demanding you pay a hefty penalty.
Here’s a brief backgrounder on the forms:
/1095-C: Applicable large employers (ALEs) must send this form to all employees eligible for coverage, regardless of whether or not they actually participate in the business’s health plan. The forms became mandatory with the 2015 tax year.
The statement provides details about:
- the coverage offered to the employee,
- the lowest-cost premium available to the employee, and
- the months of the year when the coverage was available.
1094-C: When employers send the 1095-C forms of each employee to the IRS, they must also send Form 1094-C, which is essentially a “cover sheet” for the former. It provides information about:
- the employer – including address, phone number and employer ID number
- how many employees it has,
- the name of a contact person, and
- how many 1095-C forms are being sent.
In an article in the trade publication Employee Benefit Adviser, Zack Pace – senior vice president, benefits consulting, at CBIZ – recommends the following, should you receive Letter 226J:
1/ You usually have 30 days to respond – The letter will always state how long an employer has to respond, but Pace reminds you to check the response time in the letter as it could be less than 30 days.
2/ If you didn’t ask for transition relief, you can’t get it – For the 2014 tax year, ALEs could check a box for “Section 4980H Transition Relief” on the 1094-C form, which absolved them of providing coverage to employees for that year only. To qualify for transition relief:
- The employer must have been an ALE that had 50 to 99 full-time employees, including full-time equivalents, on business days in 2014;
- During the period of Feb. 9, 2014 through Dec. 31, 2014, the ALE did not reduce the size of its workforce or reduce the overall hours of service of its employees in order to qualify for the transition relief; and
- During the period of Feb. 9, 2014 through the last day of the 2015 plan year, the ALE did not eliminate or materially reduce the health coverage, if any, it offered as of February 9, 2014.
But if you qualified but didn’t opt for transition relief, you would be required to comply with the employer mandate for that year.
3/ The IRS only has the information on the forms to go by – The IRS only relies on the information the employer provides on the forms, when it comes to assessing compliance and calculating penalties. It won’t dig deeper to see if you really were complying or are eligible for a lesser penalty. This is why it’s so important to make sure the information on these forms is accurate.
4/ If you use a vendor to populate the forms, verify their work – After all, it’s you that the IRS will come after if there are mistakes on the forms. After you receive the forms from your payroll vendor, third party administrator or a similar entity, you should scan through the forms to check that codes and answers are correct. Have a second pair of eyes like your accountant, attorney or benefits consultant to also scroll through them.
5/ No do-overs – After an employer has received Letter 226J, they cannot attempt to refile forms 1094-C and 1095-C forms if the originals contained mistakes. Instead, recipients should follow the instructions in the letter, including the instruction that they are not to file corrected forms.
6/ You can tie the penalty to specific individual 1095-C forms – Trouble-shooting is made easier, as an accompanying chart to the letter includes notes about which specific individuals any proposed penalties are tied to. With that information, you can pull the forms tied to those individuals to see where a mistake may have been made.
7/ Take action when you receive a letter – If you receive Letter 226J, you should immediately seek advice and assistance from your accountant, lawyer and benefits consultant.