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Noncompliance with the ACA and IRS penalties

The Affordable Care Act (ACA) creates a number of difficulties for employers concerning compliance. And those not in compliance face significant penalties leveled upon them by the IRS.

According to the ACA, employers must either provide full-time employees health care coverage or make what is known as an employer shared responsibility payment (ESRP). Beginning in 2015, employers needed to provide IRS Forms 1094/1095-C indicating whether an ESRP is due.

While questions arose whether the IRS would assess for 2015 errors, we are now seeing the beginning of ESRP assessments for 2015. What’s more, the IRS is only providing 30 days for employers to respond to such assessments.

Steps employers may need to take

Employers need to look for a Letter 226J. Such a letter may arrive with other mail and not addressed to any specific individual. It’s always important to deal with any correspondence from the IRS immediately.

A Letter 226J will inform employers as to whether they owe an ESRP. Likely, it will also require you to provide documentation concerning information reported in the 1094/1095-C form. It is important to respond promptly as the consequences for not responding appropriately could be serious.

Why you received a Letter 226J

If a full-time employee enrolls for an individual marketplace plan, that employee will receive a premium tax credit (PTC). A PTC will help pay coverage costs.

The employer will then receive an ESRP assessment in a Letter 226J if the employer does not qualify for some sort of relief. The IRS reviews individual tax returns of employees to determine whether they received a PTC.

Do understand that the ESRP is a proposal. This means you have a right to challenge any ESRP assessment. You can accomplish a challenge through use of a Form 14674 (ESRP Response) where you as an employer will state whether you do or do not agree with the ESRP assessment.

When challenging an assessment, you will need to provide reasons for your disagreement. This could mean you question the accuracy of indicator codes contained upon a 1095-C for a particular employee.

The IRS is increasingly expecting accuracy when it comes to filling out of forms. Though there has been granting of penalty relief in the past, that does not mean such relief will continue. An incorrect filling of a form could result in you as an employer owing an ESRP assessment that may not be accurate. No one wishes to pay more than they already owe.

Tax planning is important because it allows employers to avoid penalization that might occur due to needless mistakes. Experienced tax attorneys understand the types of mistakes that result in individuals and businesses facing IRS penalties. Such professionals can also defend your rights when the IRS levies an unjust assessment.

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