The Affordable Care Act (ACA) requires large employers to provide affordable health insurance coverage for "significantly all" full-time employees. In 2018, the Internal Revenue Service (IRS) increased enforcement of this mandate, and large employers found not to be in compliance are responsible for Employer Shared Responsibility Payments (ESRP), which is a tax penalty that the ACA mandates. If the IRS believes that your Maryland business is not in compliance with this mandate based on Forms 1094-C and 1095-C and your employees' individual income tax returns, they send you Letter 226J, which notifies you that you may owe ESRP and the proposed amount.
If you receive Letter 226J, do not fail to respond, even if you think that Congress will overhaul the ACA. Contact an experienced tax attorney at Gabaie & Associates, LLC, immediately to protect your business's financial future.
The ACA was enacted in March 2010. Code §4980H specifies employer shared responsibility rules (commonly called the employer mandate) and requires companies with fifty or more full-time equivalent employees to offer affordable minimum essential coverage to at least 70 percent of full-time employees and the employees' dependent children as of 2015, and 95 percent as of 2016.
Minimum essential coverage includes ten essential health services mandated by the ACA. These are:
- Ambulatory or Outpatient Services
- Emergency Services
- Maternity and Newborn Care
- Pediatric Services (must include oral and vision care)
- Prescription Drugs
- Rehabilitative and Habilitative Services
- Preventative and Wellness Services including Chronic Disease Management
- Laboratory Services
- Mental Health, Substance Abuse Disorder, and Behavioral Health Treatment
The employer's offered plan must cover at least 60 percent of the costs of included services.
To meet the "affordable" requirement, the cost of the plan must not exceed 9.56 percent of the employee's annual household income.
Any employer, regardless of size, that sponsors self-insured health coverage for its employees is obligated to report to the IRS that it offers minimum essential coverage. The IRS receives this information when the employer files Form 1095-C Part III.
Employers who violate the employer mandate face two possible penalties based on the nature of the violation.
Violation of §4980H(a) -- Failure to Offer Coverage to "Substantially All" Full-Time Employees
An employer receives this penalty if they fail to offer minimum essential healthcare coverage to at least 70 percent of full-time employees and their dependent children in 2015 and at least 95 percent in 2016. The penalty for this violation is $173.33 per month multiplied by the number of full-time employees, not counting the first 80.
Violation of §4980(b) -- Failure to Offer Affordable Minimum Value Coverage
An employer receives this penalty if the employer fails to offer affordable minimum value healthcare coverage to a full-time employee and that employee purchases their own coverage through the Marketplace and the employee qualifies for the premium tax subsidy. The penalty for this violation is $260 per month per employee who qualifies for the premium tax subsidy.
Responding to the Notice
When you receive Letter 226J, you have only 30 days to respond or request an extension, so time is of the essence. The response date is in the upper right-hand corner of your letter. This is very important because failing to respond implies to the IRS that you agree with the proposed penalty. Call the phone number for the IRS on Form 14764 (the response form), request a 30-day extension as soon as you receive the notice, and contact Gabaie & Associates, LLC for legal assistance.
In some cases, employers do not receive Letter 226J until after the deadline listed in the upper right-hand corner. In these cases, it is especially important that you call the IRS immediately and request an extension. It is especially difficult to appeal the penalty once the IRS issues its final determination.
You need to file Form 2848 (Power of Attorney and Declaration of Representative) to allow the IRS to communicate directly with your attorney. Juda Gabaie understands the intricacies of the ACA and Forms 1094-C and 1095-C, so he can write the strongest response for you.
Contact your benefits advisor and ask them to collect data about your benefits package. Your attorney will need this information for the response to the IRS.
Your US tax attorney will help you determine why you received this notice. Possible reasons include:
- The employee or employees who claimed the premium tax subsidy misrepresented their household income or the cost of the employer's healthcare plan on their individual tax return.
- Your company does not meet the standard of an Applicable Large Employer, and therefore, except for the mandates in Code §4980H of the ACA.
- Incorrect information reported on Forms 1094-C and 1095-C.
- The IRS's calculations do not match what you reported on Forms 1094-C and 1095-C.
Your tax attorney will write a comprehensive response to the IRS, specifically addressing why their calculation of the proposed ESRP payment is incorrect. If you discover incorrect information, submit the corrections with your response letter.
If you received Letter 226J for a §4980(b) violation, the employee or employees who triggered the violation will be listed on Form 14765. Analyze those employees' employment histories and benefits eligibility with your company and provide that information to your attorney so he can include it in his response.
After you submit your response, you will receive Letter 227 from the IRS, listing any further action your company needs to take. Your attorney can use this letter as a reason to schedule a pre-assessment conference with the IRS Office of Appeals to review your case if you still disagree with the proposed penalties.
Hire an Experienced Tax Attorney
The IRS process of penalizing employers for failing to offer affordable healthcare coverage to substantially all full-time employees is very new, so hiring a tax attorney who can build a relationship with the IRS agent assigned to your case is essential. Juda Gabaie has the experience necessary to guide you through the process while fighting for a mutually agreeable outcome to your tax issue. Missing deadlines can have significant financial penalties for your company, so do not fail to respond to Letter 226J. Time is of the essence, so contact tax attorney Juda Gabaie today at 443-345-8291.