IRS Announces Enforcement of Employer Mandate Penalties

On Nov. 2, 2017, the IRS released new FAQs on their website and a sample ESRP notification letter (Letter 226J) with corresponding webpage. On the sample letter and website, the IRS provides details regarding assessment and collection of ESRPs for the 2015 calendar year (i.e., the first year employers were subject to the employer mandate).

As background, employers with 50 or more full-time equivalent employees are required to offer coverage to all full-time employees (FTEs) and their dependent children or face paying an ESRP. An ESRP is triggered if at least one FTE of an ALE received a premium tax credit through the federal exchange, and that ALE failed to offer coverage to at least 95 percent (70 percent in 2015) of FTEs or the coverage offered was unaffordable or did not met minimum value.

Beginning in late 2017, the IRS will notify certain ALEs of a proposed ESRP by sending Letter 226J. If an employer disagrees with the IRS proposed assessment, they will have an opportunity to appeal the ESRP proposal by completing Form 14764 and attaching supporting documentation (such as employee waiver forms, payroll records or benefit admin system data) that prove an offer of coverage was made to a particular employee. If there is no supporting documentation, the employer should provide a detailed statement of the circumstances using Form 14764. If the IRS rejects an appeal, a demand letter for payment (Notice CP 220J) with the final calculated amount will be issued to the ALE. However, if the ALE agrees with the proposed ESRP, they may make payment using Form 14764 and attach a check or pay online.

Employers generally have 30 days from the date the letter is generated to respond. Therefore, ALEs who receive Letter 226J should thoroughly read the instructions and respond quickly to the IRS with the required information.

Finally, please ask your advisor or account management team for a copy of our new ESRP white paper, which provides more detail.

IRS FAQs (see 55-58) »
Understanding your Letter 226-J »
Sample Letter 226J »