Reed Smith Client Alerts

Under the Patient Protection and Affordable Care Act of 2010, applicable large employers (ALEs) that fail to offer minimum essential coverage (MEC) to full-time employees or that offer MEC to full-time employees that is not affordable or does not provide minimum value may have to pay an employer shared responsibility penalty (ESRP). The Internal Revenue Service (IRS) has issued a model letter and forms that will be used by the IRS in the ESRP assessment process.

Type: Client Alerts

At the beginning of November, the IRS released a model letter 226J (Letter 226J). Letter 226J will be sent to ALEs the IRS believes owe an ESRP because they (i) did not offer a sufficient percentage of employees MEC or (ii) offered employees MEC, but the coverage was unaffordable or did not provide minimum value and the individual was entitled to a premium tax credit (PTC). Later that same month the IRS also released Form 14764 ESRP Response and Form 14765 Employee PTC Listing. Form 14765 will inform the ALE of its full-time employees who were allowed a PTC and for whom the IRS believes the ALE did not qualify for an affordability safe harbor or other relief from the ESRP. Form 14765 will also list the indicator codes the ALE reported on lines 14 and 16 of the employee’s Form 1095-C filed with the IRS. Form 14764 is the response form the ALE can use to indicate its agreement or disagreement with the ESRP amount proposed by the IRS. If the ALE agrees with the assessed ESRP, it signs and returns Form 14764 to the IRS. Payment is then also due, and it can be made by check or through the electronic federal tax payment system. If it disagrees with the assessed ESRP, the ALE can use Form 14765 to provide a full explanation of the disagreement and any proposed changes that need to be made to the information reported on Form 1095-C.

Responses to Letter 226J and the information included on Form 14764 will be due within 30 days from the date included on Letter 226J. The IRS has indicated that employers will begin to receive Letters 226J indicating their potential liability for the 2015 calendar year in late 2017. Employers that receive Letters 226J but disagree with the assessed ESRP can designate an additional person for the IRS to contact regarding the Letter 226J, including an attorney.

Client Alert 2017-292