X
X

Find Your Specialist

X

Contact Us

    Go Back

    Large Employers Should Watch for IRS Letters about their Company Health Plans

    While Congress eliminated the Affordable Care Act’s individual mandate, that doesn’t impact the employer requirements. The IRS is ramping up its efforts to enforce penalties against large employers who do not provide adequate health insurance plans. Employers with 50 or more full-time equivalent employees are required to provide employees and their dependents with “minimum essential” health insurance coverage that is “affordable” or face penalties of around $2,000 per employee. This requirement is known as the “large employer mandate.”

    The IRS has been holding off on enforcement of the mandate, but that time is coming to an end. The agency has made it known that employers can expect to hear from them soon. (See Questions 55-58 of the IRS FAQs.) The first enforcement effort will be based on the employer’s compliance status in 2015, so the initial enforcement efforts are retroactive. The IRS will use data reported to the IRS on Forms 1094-C and 1095-C and information on employee coverage from the health insurance exchanges to gauge whether an employer has penalty liability.

    Scorecard Drives ACA Policy

    Why would Congress eliminate the individual mandate in its tax bill, but leave the large employer penalties in place? It could be that the individual mandate costs the government money while the large employer mandate brings in government revenues. The Congressional Budget Office (CBO) has estimated that penalty payments by large employers will bring in $207 billion over the next 10 years. The individual mandate, on the other hand, costs the federal government money in the form of subsidies for individual health plans. Repealing the individual mandate is estimated to save the feds $388 billion over the next decade, money that will help offset tax cuts such as the reduced corporate tax rate.

    Watch for IRS letters

    The IRS enforcement effort will begin with Letter 226J notifying the employer that the employer owes an Employer Shared Responsibility Payment (ESRP). An initial calculation of the penalty is included along with an explanation of why the employer is being assessed. The penalties are imposed based on at least one employee seeking a premium tax credit and a certain percentage of employees not being properly covered by the employer’s plan.

    Employers have a chance to respond to the letter on Form 14764, ESRP Response. Employers only have 30 days to object. The response deadline will be shown on the letter. Letter 226J will contain the name and contact information of a specific IRS employee that the employer should contact with questions about the letter. The IRS will then respond in writing to an employer’s objection to the proposed penalties. If an employer still disagrees, then the employer can request a conference with the IRS Office of Appeals. Failure to respond or to pay subjects the employer to liens and levy enforcement actions.

    How to make payment

    If after a response and contact with the IRS, it is determined that the employer liability is correct, the IRS will assess the employer shared responsibility payment and issue a notice and demand for payment, which will explain to the employer how to make payment. Employers will not be required to include the employer shared responsibility payment on any tax return that they file or to make payment before notice and demand for payment

    What to do if you get a letter

    If your company receives a letter, you should contact your tax adviser at Frazier & Deeter immediately. The clock is ticking on your time to dispute the penalties. Remember, failure to respond on time can make you you’re your ability to challenge the assessment and can trigger liens and levies.

    Related Articles

    • 01.25.2023

      A New Year Means New Privacy Laws

      Ever since the General Data Protection Regulation (GDPR) came into effect in May 2018, US state privacy laws have been passed in Virginia, Colorado, Connecticut, Utah and, most pressing of them all, California. The California Privacy Rights Act (CPRA) went…

      Continue Reading
    • 01.19.2023

      The New Rules Under Section 174

      Internal Revenue Code Section 174 has long been used by taxpayers to deduct certain expenses related to research and experimentation (R&E) in the current year.  The code section was originally enacted in 1954 to eliminate uncertainty in the tax accounting…

      Continue Reading
    • 12.20.2022

      IRS Customer Service May Improve in 2023

      With 4,000 new customer service representatives and plans to hire 700 new Taxpayer Assistance Center (TAC) employees, taxpayers soon may get relief from endless hold times, no in-person help and unresolved problems.

      Continue Reading
    • 12.12.2022

      Reduce Taxable Income with IRA Distributions Transfers

      IRA owners who are age 70½ or over can transfer up to $100,000 per year to charity to reduce their taxable income. These transfers, known as qualified charitable distributions or QCDs, offer end-of-the year tax savings and can count toward required minimum distributions (RMDs) that taxpayers who are age 72 must make each year. Think of it as a tax-free charitable rollover of IRA funds.

      Continue Reading
    • 12.02.2022

      UK R&D Tax Reliefs – Where Are We Now?

      In the November 2022 Autumn Statement, the Chancellor announced significant changes to the current Research and Development (R&D) tax reliefs. The key announcements were a change to the applicable rate of the Research and Development Expenditure Credit (RDEC) and a…

      Continue Reading
    • 12.01.2022

      1099s Required for 2022 Tax Year

      Taxpayers earning income from selling goods or providing services may receive a Form 1099-K, Payment Card and Third-Party Network Transactions, for the first time in early 2023, when the 2022 forms are due. The requirement to file Forms 1099 have…

      Continue Reading
    • 11.28.2022

      IRS Uncovers $3.1 Billion in COVID Fraud

      The IRS Criminal Investigation department (IRS-CI) has partnered with the Justice Department to uncover and prosecute fraudulent activities related to the federal government’s COVID relief programs. To date, the IRS has conducted 840 investigations involving fraud amounts totaling more than…

      Continue Reading
    • 10.25.2022

      IRS Inflation Reduction Act Increases Funds

      The Inflation Reduction Act of 2022, enacted in August, increased funding for the IRS by $80 billion through 2031 for enforcement activities, operations support, systems modernization and taxpayer services. The legislative language, Treasury Secretary Janet Yellen and IRS Commissioner Charles…

      Continue Reading

    Privacy Overview

    When you use or access the Site, we use cookies, device identifiers, and similar technologies such as pixels, web beacons, and local storage to collect information about how you use the Site. We process the information collected through such technologies, which may include Personal Information, to help operate certain features of the Site (e.g., to prevent online poll participants from voting more than once), to enhance your experience through personalization, and to help us better understand the features of the Site that you and other users are most interested in.

    You can enable or disable our use of cookies per category.
    Always Enabled