If you’re confused about the status of the Affordable Care Act (ACA), you’re not alone. While the ACA continues to be debated across the nation and challenged in courts, the IRS remains fully committed to upholding the law as long as it stands. And now employers who ignored the rules in previous tax years are facing stiff consequences — amounting to billions of dollars in penalties.
What Are the Reporting Requirements?
ACA reporting generally applies to businesses with 50 or more full-time employees. These are known as Applicable Large Employers (ALE).
If you’re a covered business, you must offer minimum essential coverage to at least 95 percent of your full-time workforce — and their dependents. And you’re required to report that information to the IRS using Forms 1095-C (and transmittal Form 1094-C).
Why Have Companies Not Filed?
Many businesses have simply ignored the requirements. One of the reasons is that there was no enforcement from the IRS when ACA reporting first went into effect in 2015. And the same was true for 2016. Then President Trump was elected, and he promised to undo the ACA. Employers who hadn’t filed thought they were in the clear.
Turns out, that’s not the case. In 2017, the IRS began issuing penalties to companies that neglected to file in 2015. Currently, the agency is issuing penalties for 2016. And all signs indicate the IRS will continue to pursue businesses that don’t file. Why? It’s a huge revenue stream, with billions of dollars at stake. In fact, to date, the IRS has issued close to $5 billion in penalty assessments.
You may be asking, “Didn’t a federal judge in Texas recently rule the law unconstitutional?” Yes, that’s true. But the legality of the ACA has already been tested in the Supreme Court numerous times. And it’s always been upheld.
What Is Letter 226-J?
Companies targeted by the IRS for not filing — or filing incorrectly — are notified by an IRS document known as Letter 226-J.
Letter 226-J is the initial letter issued to ALEs to alert them that they may be liable for payments and penalties. Potential liability is based on three factors:
- Failure of an ALE to file the required forms by the deadline
- Incorrect or missing information on the forms filed by the ALE
- Information provided on individual income tax returns filed by the ALE’s employees
What Should I Do If I Receive the Letter?
Read your letter and attachments carefully. Then, determine whether you agree or disagree with the payment/penalty calculation. Once you’ve decided, you need to complete IRS Response Form 14764 indicating your agreement or disagreement with the letter.
If you disagree with the proposed liability, you must:
- Provide a full explanation of why you disagree
- Indicate changes needed on Form 14765 (PTC Listing)
- Return all documents as instructed in the letter by the response date
If you agree with the proposed amount owed, follow the instructions to sign the response form and return it with full payment in the envelope provided by the IRS.
What Should I Do If I Haven’t Filed?
If you haven’t submitted required ACA information to the IRS, you must file as soon as possible to minimize potential penalties. In the interest of speed, consider using an online provider such as efile4Biz. You can upload the required data or complete the ACA forms online, and copies are printed and mailed to your employees. Then the forms are electronically filed with the IRS. It’s the fastest, easiest way to meet the IRS requirement.