Kelli Smith Selerix Systems Manager, ACA Services

As your partner in the ACA process, we are committed to assisting Employers in understanding the impact of regulatory requirements.   As part of that commitment, we have created a brief video containing some important and valuable information.

ACA Quick Hit: Are you Ready for IRS Letter 226J

Please contact ACA Support with any questions.

Employers should not overlook the Affordable Care Act's (ACA's) annual inflation-adjusted shift in cost-sharing limits for group health plan coverage, as they could face potential penalties for failing to provide affordable coverage under the ACA's shared-responsibility provisions.

On May 21, the IRS announced in Revenue Procedure 2018-34 the 2019 shared-responsibility affordability percentage. Based on the ACA's affordability standard as adjusted for inflation, health coverage will satisfy the requirement to be affordable if the lowest-cost self-only coverage option available to employees does not exceed 9.86 percent of an employee's household income, up from 9.56 percent in 2018.

In determining the maximum self-only contribution amount that a calendar year plan can charge in 2019 under the Federal Poverty Level (FPL) safe harbor, the 2019 FPL of $12,140 for a one-person household is used. The maximum monthly contribution will be 9.86% of $12,140, divided by 12, or $99.75. The amounts for prior years are also included in the table below:

The IRS letter 226J and the accompanying forms state a penalty amount, the IRS is asking employers to confirm, or dispute, the amount in question. This is not an assessment, yet, but it could be.

1. Read the letter and forms closely. The letter and forms have specific instructions for how to respond and whom to contact. Don't assume that the IRS necessarily calculated the penalty correctly or has all the facts.
2. Mind the deadlines. The IRS letter 226J says a response is due within 30-days of the date of the letter (not the date you received it).
3. Gather your documentation. If employers want to contest the penalty amount, you will likely need to prove that the employer offered health coverage to one or more of the employees listed in the IRS forms. Employers will also need to prove that the coverage was “affordable” and “provided minimum value,” as those terms are defined in the ACA. For that, you’re going to need documentation.
4. Contact vendors. Some documentation employers may have in their files, but employers may also need documentation from vendors to help round out the response.
5. Be organized and explain your response. An organized, professional response will likely go a long way to making this a smooth process.
6. Don’t forget about transition relief. The first letters relate to the 2015 calendar year. There were various forms of transition relief that applied in that year which could reduce an employers penalty amount.
7. Consider contacting an experienced attorney, accountant, or other tax adviser. If the IRS letter 226J, or the employers response, requires nuance or complexity, or a high volume of records, you may want the assistance of an outside tax adviser.
8. IRS’s comments – Pay attention. Reporting for 2018 is closer than you think. If employers receive a letter because of a reporting issue, be sure to review the 2018 reporting to avoid a similar headache down the line.

This information is provided as a courtesy to assist in your understanding of the impact of certain regulatory requirements and should not be construed as tax or legal advice.  Selerix encourages readers to consult with appropriate legal and/or tax advisers.

An Applicable Large Ermployer (ALE) will have an opportunity to respond to Letter 226J before any penalty is assessed and notice and demand for payment is made. Letter 226J contains instructions for how the ALE should respond in writing, either agreeing with the proposed employer shared responsibility payment or disagreeing with part (or all) of the proposed amount.

After the initial ALE response, the IRS’ next steps are as follows:

• The IRS will acknowledge the ALE’s response to Letter 226J with an appropriate version of Letter 227 (a series of five different letters that, in general, acknowledge the ALE’s response to Letter 226J and describe further actions the ALE may need to take).
• If, after receipt of Letter 227, the ALE disagrees with the proposed or revised employer shared responsibility payment, the ALE may request a pre-assessment conference with the IRS Office of Appeals. The ALE should follow the instructions provided in Letter 227 and Publication 5, Your Appeal Rights and How To Prepare a Protest if You Don’t Agree for requesting a conference. A conference should be requested in writing by the response date shown on Letter 227 (generally will be 30 days from the date of Letter 227).

This information is provided as a courtesy to assist in your understanding of the impact of certain regulatory requirements and should not be construed as tax or legal advice.  Selerix encourages readers to consult with appropriate legal and/or tax advisers.

There is no guarantee that an employer will receive the letter, however if they do, they must respond by the date shown on the letter (usually within 30 days from the date of the letter). The IRS would use the mailing address and exact employer naming provided on the groups 2015 electronic form (1094-C) filing.

Due to the time sensitivity for responding, we recommend employers alert their mail room or personnel responsible for distributing the mail to be on the lookout for anything coming from the Department of the Treasury, Internal Revenue Service. With only 30-days to respond or request an extension, you will want the letter forwarded to you immediately.
 

This information is provided as a courtesy to assist in your understanding of the impact of certain regulatory requirements and should not be construed as tax or legal advice.  Selerix encourages readers to consult with appropriate legal and/or tax advisers.