If you’ve been identified as owing an ACA employer shared responsibility assessment, you may be getting a notice from the IRS just in time for the holidays. With the release of FAQs on employer shared responsibility payments (ESRPs) (see Questions 55-58), the IRS quietly announced the assessment process for the 2015 tax year will begin before the end of 2017. Recall that 2015 was the first year for which ACA reporting was required—Forms 1094 and 1095 were due in early 2016.
If you receive one of these notices, first of all, don’t panic. It doesn’t necessarily mean you owe an assessment. There are a lot of reasons why your filing might have been flagged – for example you may have included an incorrect code or forgotten to check a box on the form.
Responding to the notice will take some time and you should be prepared to respond within a short 30-day window. To help you respond quickly, I’d recommend you take time to gather some information now.
- Start by reviewing your 2015 Form 1094-C submission and alert the contact person listed from your organization to keep an eye out for Letter 226J. If necessary, instruct the contact person to forward any IRS correspondence to the appropriate person immediately upon receipt.
- You should also ensure that you can easily access copies of the filed 2015 Forms 1095-C, as well as all relevant back-up data, including information on any affordability safe harbor used, the minimum value status of the plan, information regarding when coverage was offered, enrollment information, and information to support the ACA full-time status for employees, including lookback method data.
Here’s more detail about the ESRP process and how you respond to an IRS notice.
The FAQs provide broad strokes to the ESRP process. The IRS will determine whether your organization owes a payment based on information you reported, as well as information reported by the public exchanges regarding any full-time employees who received a premium tax credit. If the IRS determines a payment is owed, it will send Letter 226J. The letter will contain the proposed payment amount and how to respond depending on whether you agree or disagree with the proposed payment. The letter will also contain a list of full-time employees who qualified for a premium tax credit but for whom the you did not satisfy an affordability safe harbor or other relief.
How to respond to the ESRP letter. Your response will generally be due 30 days from the date of the letter. Given processing and mail time, you will likely have less than 30 days in which to respond. If the IRS does not receive a timely response, it will assess the full amount of the proposed payment in a demand letter. If you agree with the proposed payment, payment can be included with your response, using the enclosed response form (Form 14764). If you do not agree with the proposed payment, a response with a signed statement is required.
What happens after the response? The IRS will acknowledge your response with another letter including a revised payment owed (if any). If you still disagree with the revised payment, you’ll need to make a written request for an appeal. This request is also due within 30 days of the date on the letter. If the IRS does not receive a response, it will proceed with a notice and demand for payment.