New IRS Employer ‘Pay or Play’ Penalty Letters
The IRS has announced that it will begin mailing employers letters informing them of their potential liability. The ACA “pay or play” penalty for the 2015 calendar year in late 2017. However, employers will have an opportunity to respond.
What Will the Letter Contain?
The IRS plans to issue Letter 226J to applicable large employers (ALEs)—generally those with at least 50 full-time employees, including full-time equivalent employees, on average during the prior year—if it determines that, for at least one month in the year, one or more of the ALE’s full-time employees was enrolled in a qualified health plan for which a premium tax credit was allowed (and the ALE did not qualify for an affordability safe harbor or other relief for the employee). Letter 226J will include, among other things:
- A penalty payment summary table, itemizing the proposed payment by month;
- The “employee premium tax credit list” lists the ALE’s employees month to month. It lists at least one month in the year whcih FT employees were allowed a premium tax credit. Addiotnaly it list for whom the ALE did not qualify for an affordability safe harbor or other relief;
- A description of the actions the ALE should take if it agrees or disagrees with the proposed penalty payment; and
- A response form.
The response to Letter 226J will be due by the date shown. This is generally 30 days from the date of Letter 226J. Letter 226J will also contain the name and contact information of a specific IRS employee that the ALE should contact if the ALE has questions about the letter.
How Does an ALE Make a Pay or Play Penalty Payment?
If, after correspondence between the ALE and the IRS, the IRS determines that an ALE is liable for a penalty payment, the IRS will assess the payment and issue a notice and demand for payment, Notice CP 220J. That notice will instruct the ALE on how to make a payment, if any. Notably, an ALE will not be required to include a payment on any tax return that it files or make a payment before notice and demand for payment.
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Visit our “Pay or Play” (Employer Shared Responsibility) section for more on pay or play compliance. Ask us how our PEO & HR Partnershios are helping our clients successfuly manage ACA compliance. Call 855-667-4621