Following up on last year’s launch of the Affordable Care Act (“ACA”) employer mandate enforcement for 2015 (for background, go here), the IRS has now started enforcement efforts for the 2016 calendar year. From what Hub has seen so far, we have a few observations:

  • The initial 2016 letters included some references to 2015 transition relief. However, this relief did not apply in 2016. For example, in 2015 to avoid the larger A penalty, an employer only needed to offer coverage to 70% of its full-time employees (and their dependents). However, starting in 2016, this threshold was 95%. The initial 2016 Letters 226J included references to the 70% threshold instead of 95%, but that was incorrect. Later letters have corrected this issue. Regardless of what the letter says, the 95% threshold applies.
  • We have noticed significant differences between the employer’s reported data and the data the IRS includes with the Letter 226J. Therefore, we encourage employers to review their assessment letters closely. Because of these very significant data inaccuracies, you will need your 2016 Form 1094-C and relevant Forms 1095-C on-hand to audit and review the data you filed against the data included in the IRS’s 226J Letter.
  • As we reported previously, in many cases, the IRS is still not asking for supporting documentation with an employer’s appeal. However, we continue to encourage employers to assemble and maintain the documentation so they can be sure their responses to the IRS are complete and correct, especially given the data irregularities mentioned above. The documentation may also come in handy if the employer has to do additional appeals. While you may not have to submit the documentation to the IRS, it is important to specifically reserve the right to submit supporting documentation later in your response to the IRS.

If you did not receive your 226J Letter until after the response deadline set forth in the letter, it is extremely important that you immediately call the IRS to request a deadline extension. It is more difficult to contest the penalty once the IRS issues its final determination. Employers should submit their IRS packet with a cover letter that explains in detail the employer’s position regarding the penalty and any incorrect data provided by the IRS in the Letter 226J.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.