So you got an ACA penalty: How payroll can help employers navigate Letter 226-J
The IRS is continuing to send Letter 226-J to employers for 2015 ACA reporting and employers are turning to trusted advisors for help. One of those advisors is often an employer’s payroll provider, especially since up-to-date payroll data is critical to ACA compliance.
But, with ACA penalties being issued, payroll providers are changing best practices to navigate the shifting requirements that come with Letter 226-J. So what does this mean for employers?
In this post, we’ll outline the role payroll providers play in helping employers manage the ACA penalty process, as well as the legal liability of payroll providers, and what employers should look for in a payroll provider.
Payroll providers’ role in ACA compliance
Most payroll providers collect the necessary employer data required to submit for ACA reporting, including employees’ hours worked, full-time status, and more. Some payroll providers even include their own partial ACA reporting solution as part of their services. However, most solutions don’t accurately code payroll data, let alone print and mail the 1095-C and 1094-C forms, which can be time consuming.
It makes sense that many employers are turning to their payroll provider to get the data they need to support their response for Letter 226-J. But as it turns out, payroll isn’t obligated to do much at this stage.
What’s payroll’s liability?
Though payroll houses the data required to respond to ACA penalty letters, technically they’re not liable for the information submitted by employers, including any errors that may have been included in the IRS forms.
While some payroll providers guide employers to a legal team or accountant to understand the proper steps to take after receiving a letter -- even if payroll may have provided data in the first place -- unless a contract states otherwise, payroll providers aren’t responsible for helping with responses to Letter 226-J. And, more importantly, they’re not on the hook for steep fines and penalties being issued to employers for noncompliance.
How to find a payroll provider that can help
While payroll providers aren’t obligated to help, at SyncStream, we work with many supportive payroll providers who thoroughly vet solutions that can help mitigate these ACA reporting issues. Some payroll providers even help train employers to fully understand the technology and identify tricky areas in the reporting process.
The result? Our partners have not received a single penalty letter from the IRS.
If you’re searching for a payroll provider that can help guide you through the process, here are some of the things you should be looking for:
- Physical assistance – Find a payroll provider willing to help you manually crunch numbers and find errors in the data. This method can be disruptive since it takes time to carefully review the data, and the process must be completed within 30 days of receiving Letter 226-J from the IRS. A payroll provider willing to take action to identify and update filing inaccuracies can be a life saver.
- Financial assistance – Ask potential payroll providers if they have a solution that can quickly find and correct errors on 1095-C and 1094-C forms. In a cost-benefit analysis, this can actually be more cost-effective than taking internal staff away from their day-to-day jobs or hiring new employees to verify the inaccuracies in the data.
While payroll providers aren’t liable for footing the bill from the IRS, the leaders in the industry support employers in compiling their response to Letter 226-J. Now that the IRS is allowing employers to refile and correct errors from past reporting seasons, you should find a payroll provider that proactively reviews your data before a penalty letter is issued.
Whether you’re opting out of your payroll program and connecting with vendors independently or tracking and reporting activities in-house, it’s important you take the proper steps to ensure ACA compliance success.
One thing is for certain: Penalties continue to roll in for 2015, and we’re already hearing about letters for 2016 filings. Most companies filed the same way for 2016 as they did for 2015, so you can expect letters to hit their mailboxes again soon. Remember penalties get bigger each year, so the sticker shock is greater for 2016 than 2015 and it will be even worse for 2017.
The best thing for employers to do now is proactively review data for 2015, 2016, and 2017 and make corrections to avoid penalties from the IRS. For employers with a payroll provider, working together is the first step to complete the filing process smoothly and reduce the chances of a letter from the IRS.