IRS to Send Notices to Employers Subject to ACA “Pay or Play” Penalties

By the end of 2017 the IRS plans to send notification to applicable large employers (ALE) of potential liability for failure to comply with the “pay or play” mandate of the Affordable Care Act (ACA). These notifications (Letter 226J) will be sent to ALE employers that the IRS determines had one or more employee, in at least one month in 2015, that received a subsidy toward health care premiums purchased through the marketplace because the employer failed to provide health coverage that is compliant with the ACA requirements (affordable and providing minimum essential coverage).  The IRS will make this determination based on information provided by employers on Forms 1094-C and 1095-C (required ACA reporting forms) as well as information provided to the IRS on individuals’ tax returns. 

The notice sent (Letter 226J) will include a list, by month, of employees who received a premium tax credit (or subsidy) because they were not offered ACA-compliant health coverage by the ALE. The notice will also include the proposed penalty amount, a response form (Form 14764) and contact information for an IRS representative to contact with questions. Employers have 30 days from the date on Letter 226J to respond to the IRS before penalty payment is demanded.

If the IRS does not receive a response from an ALE within 30 days, a demand for payment via Notice CP 220J will be issued.

The IRS will acknowledge receipt of the employer’s response via Letter 227. This notice will include instruction for the employer regarding potential further action needed.

The IRS has published some FAQs regarding these notifications, penalties, and the response process. To read the FAQs click here.