Nestled amid holiday cards may be a less welcome letter from the IRS. The IRS has confirmed that the initial notices to employers that they may owe employer shared responsibility (ESR) penalties are going out before year-end. Letter 226J will address preliminary calculations of amounts employers owe for tax year 2015.
Employers subject to the ESR provisions are those employers who met the definition of an “applicable large employer” or ALE. ALE status, according to the IRS, is determined each calendar year, and generally depends on the average size of an employer’s workforce during the prior year. An employer who has at least 50 full-time and full-time equivalent employees on average during the prior year is an ALE for the current calendar year.
For calendar year 2015, the Employer Shared Responsibility Payment (ESRP) amounts are $2,080 and $3,120.
What Employers Must Do
First and most important is that employers should not ignore this letter. In fact, with only 30 days to respond, employers should be on the lookout for the letter which is expected to be sent before the end of this year.
Employers must tell the IRS whether they agree or disagree with the IRS’ assessment.
If the employer agrees with the findings in the letter he must complete, sign and date the Form 14764 response. It must be sent by the date indicated on the first page of the letter. Payment should accompany the letter or it may be paid electronically.
An employer that disagrees with the IRS’ assessment must also complete Form 14764. There must be a signed statement explaining the areas of disagreement. Documentation supporting the statement must be provided. Employers providing added documentation should indicate this by entering a check in the column on the Employee PTC listing titled “Additional Information Attached.”
Employers are not directed to file a corrected Form 1094-C. Instead, any changes should be made on the Employee PTC Listing.
The IRS will reply with an acknowledgement letter following the employer’s response that provides their final determination.
If the employer does not respond within the time frame the IRS will send a Notice and Demand for the proposed amount in the letter 226J. The amount will be subject to IRS lien and levy enforcement actions. Interest will also accrue from the date of the Notice and Demand and continue until the amount due is paid.
Note that the ESRP is not deductible for income tax purposes.
Employers should keep a copy of the letter and any documents that are submitted to the IRS.
The IRS has a web page to explain the letter 226J. It can be found here.