The IRS has taken actions indicating that the employer mandate penalties under the Affordable Care Act are about to be enforced. Employers should expect to begin receiving letters from the IRS indicating penalties are due for the 2015 year in the coming weeks. There are a few things that employers can do to be prepared for these letters, which require a quick 30-day response.

The IRS recently updated its Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act to include Q&As 55-58, “Making an Employer Shared Responsibility Payment.”  The Q&As indicate that if the IRS believes that an Applicable Large Employer (“ALE”) owes an employer mandate penalty under the Affordable Care Act, the ALE will receive a Letter 226J.

The IRS plans to issue Letter 226J to an ALE 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). The IRS will make the determination as to the liability for an employer mandate penalty based on information reported to the IRS on Forms 1094-C and 1095-C and whether full-time employees received a premium tax credit.

Actions Employers Should Take Now 

The IRS has indicated that employers will only have 30 days to respond to Letter 226J before penalties are actually assessed. Employers will be permitted to submit a statement and supporting documentation that describes why the employer disagrees with a proposed penalty assessment.

Therefore, employers should have Forms 1094-C and 1095-C filed in 2015 readily available, as well as documentation indicating how they determined the full-time status of their employees (i.e., using the monthly measurement period or the look back period). Additionally, employers should review 2015 Forms 1094-C and 1095-C for any errors. Employers may not file corrected Forms 1094-C and 1095-C, but Letter 226J provides a process for employers to correct any incorrect information within the 30-day timeline.

Employers May Respond to Letter 226J

If employers do not respond within the 30-day timeline to the Letter 226J, the IRS will assess the proposed employer mandate penalty.

The Letter 226J provides instructions on how to respond and indicate disagreement with the proposed penalty. After a response, the IRS will send a Letter 227, which apparently has five different versions. Employers can also request a pre-assessment conference with the IRS Office of Appeals if the employer still disagrees with the proposed assessment.


About the Author: Eric W. Gregory is an Associate in Dickinson Wright’s Troy office where he assists clients in the areas of ERISA, employee benefits, and compensation. He advises clients on all aspects of employee benefits including qualified retirement plans, welfare plans, and nonqualified compensation programs. Eric can be reached at 248-433-7669 or and you can visit his bio here.