The IRS is sending ACA penalty letters. Here’s what to do if you get one.

The Affordable Care Act (ACA) was always meant to collect penalties from employers who didn’t comply with its regulations. Yet in the few years that ACA tracking and reporting has been required, these penalties haven’t seemed particularly real.

Until now, that is. As of a few weeks ago, the IRS has updated its website and FAQ in relation to the ACA, introducing Letter 226J and the common questions that could come with it. These letters will soon begin to show up at businesses, meaning that those who failed to comply will finally have to pay their fair share.

Here’s what you should know about Letter 226J before it hits mailboxes later this year.

ACA penalties get real

The Letter 226J is the first of its kind to go out related to ACA penalties. It deals specifically with employer shared responsibility payments (ESRPs), which an applicable large employer (ALE) must pay if it doesn’t provide an affordable health care plan with minimum essential coverage to the proper employees. Although these letters will be mailed in late 2017 and into 2018, they concern the 2015 reporting year.

The letter includes a number of pieces, labeled as the following:

  • The proposed amount the employer owes
  • An explanation of why the employer owes the ESRP, based on its 1095-Cs
  • Instructions for next steps, including what to do if you agree or disagree with the explanation included in the letter
  • The ESRP response form, Form 14764
  • Form 14756, the Employee PTC (Premium Tax Credit) Listing, which lists, by month, the ALE’s assessable full-time employees, and can be filed if the employer does not agree with the ESRP owed
  • Information on what will happen if the employer does not respond
  • General information about ESRPs and section 4980H
  • An ESRP summary table, detailing how much is owed per employee, per month

Since this is the first time Letter 226J will be sent out and the associated payments collected, there are sure to be some bumps in the road. However, its addition to the IRS website means the agency is serious about collecting these payments, and you should be prepared in case you receive one.

Your options if you owe an ESRP

When you get the letter, you must first decide if you agree or disagree with the ESRP owed.

If you agree, you can simply complete the Form 14764 enclosed with the letter, and mail it back to the IRS within 30 days with your payment via check or money order. Payments can also be made online, if you are enrolled in the Electronic Federal Tax Payment System (EFTPS).

If you disagree, you should still complete the Form 14764 and return it within 30 days. If you want to make any changes to your Forms 1094-C and 1095-C, you should detail that in your statements on Form 14764, as well as on your revised Employee PTC Listing (Form 14765).

If you choose to dispute the claims, good, organized data stored in a reliable and verifiable system is the best way to prove your point. If you had one in place during the 2015 reporting season, it will simplify the process of refuting the IRS’s claims. Without such a system, you could spend a huge amount of time trying to pull together old documents, payroll data, and other proof of compliance that may not pass the IRS’s standards.

Failure to respond to the letter at all will result in a second notice and demand of payment, followed by IRS lien and levy actions. Payments will also start to accrue interest following the deadline listed within the letter.

Take ACA compliance seriously

ACA compliance hasn’t been strictly enforced before this year. Now that the IRS is serious about collecting on penalties, many employers will be scrambling to put together their best shot at compliance before this year’s ACA reporting deadlines in January and March.

If you don’t have a solution in place to deal with these compliance issues, now may be the time to invest in one. The ACA’s penalties are no longer some far-off, vague threat. They’re here, they’re real, and you will be affected by them if you can’t prove compliance for prior and upcoming years. To learn more, visit our IRS PENALTY LETTERS Page