Keep Calm and Don't Panic
Are you a large employer subject to the Affordable Care Act’s employer mandate? If so, I’ve got two warnings for you before you read any further:
Warning #1: Don’t panic (I’ll get back to this in a moment, but for now, stay with me).
Warning #2: There are a lot of numbers in this post, but you need to know what’s coming. It’s important.
Earlier today, the IRS revised their Affordable Care Act FAQs with respect to the employer shared responsibility requirements, and two key questions have now been answered:
- Are they going to actually enforce the mandate penalties on employers?
- If so, what’s the process?
We now know the answer to the first question is 'yes' – starting with 2015, the first year the employer mandate went into effect. Opinions varied, but many people expected the IRS to give employers a pass on 2015 enforcement. Combine the IRS’ silence on the issue in 2016, and reports of software and process issues in evaluating 1094 and 1095 forms, and it makes sense the IRS would end up skipping 2015 and move on. However, FAQ #58 clarifies that for the 2015 calendar year, the IRS plans to inform employers of penalties in late 2017. No word yet on when 2016 penalties will roll out.
In terms of process, it wouldn’t be the IRS if there weren’t a lot of forms and notices involved. So here we go:
- Employers will be informed of a responsibility payment via “Letter 226J”.
- The 226J will include a list – Form 14765 – that will indicate, by month, which employees qualified for a tax credit and, therefore, caused a penalty to be incurred.
- It'll also include Form 14764, which will be used by the employer to respond to the penalty notification.
If the employer decides to respond to the notice, the IRS will acknowledge the response with “an appropriate version of Letter 227” – which will be coded based on the type of response the IRS gives. While we don’t yet know the contents of Letter 227, the FAQs state that a conference with the IRS Office of Appeals will be scheduled within 30 days of the date of Letter 227.
Lastly, if there’s no appeal of the penalty, or the appeal is settled and a penalty is still owed, Notice CP220J will be issued with instructions on how to pay the penalty.
With these FAQs, the IRS has finally fleshed out the enforcement process. Details are still missing of course – for instance, most of these forms don’t appear to be available for inspection yet. We'll continue to monitor the situation and update our clients as developments occur. In the meantime, reach out to your Assurance representative if you have any questions.
Oh, and why was warning #1 to not panic? I’m simply repeating the IRS’ #1 tip upon getting a letter from them.
Information contained herein is not intended to constitute tax or legal advice and should not be used for purposes of evading or avoiding otherwise applicable regulatory responsibilities as issued by the federal or state government(s) and/or taxes owed under the Internal Revenue Code. You are encouraged to seek advice from your legal or tax advisor based on your circumstances.
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