Penalties! Penalties! The IRS is now Sending ACA Penalty Notices. Brenda JM Sabin, CBP, SPHR, SHRM-SCP, CHRS

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1 Penalties! Penalties! The IRS is now Sending ACA Penalty Notices Brenda JM Sabin, CBP, SPHR, SHRM-SCP, CHRS

2 Remember the reporting for 2015 and 2016? ACA reporting the first two years Nightmare! Payroll Companies not ready Employers not ready Measurement periods still confusing Changes in status of employees Offer Codes The 1 series Coverage/Safe Harbor Codes The 2 series Good Faith Effort 2

3 Where are we now? The 2017 deadline to furnish 1095 forms has been extended (employers do not have to request this extension) Forms to employees due by March 2 nd, 2018 Employees do NOT need these forms to file their own taxes IRS IS looking for individual coverage information question on tax form has stated if no response to question, tax filing will not be processed Employers - Filing 1095/1094s with IRS has NOT been extended due 2/28/18 for paper filers, and April 2, 2018 if filing electronically. Extended good faith effort but doesn t mean no penalties! IRS Notice

4 And then on November 2 nd, 2017 IRS updated their Q&A section on how an employer will know if they are subject to penalties. Q-55. How does an employer know that it owes an employer shared responsibility payment? The general procedures the IRS will use to propose and assess the employer shared responsibility payment are described in Letter 226J. 4

5 Penalty Letters Why? The IRS maintains a website regarding this letter Preliminary Calculation of Employer Shared Responsibility Payment (226J) Why are you getting this 226 J letter? The IRS used the information (codes) you provided on Forms 1094/5-C and determined that you are potentially liable for an ESRP (penalty). Again - This letter will provide information on the individual employee(s), who for at least one month was a full-time employee, who received a premium subsidy while enrolled on the health care exchange, and the employer plan didn t qualify for a safe harbor or interim relief. 5

6 What is with the letter? Form Employee Premium Tax Credit Listing list the full time employees being used to assess a penalty. Only 10 employees will be listed on each form, you may receive multiple forms (thick packet!) Form Response Form (go to 226J PAGE then right click on link, save it, then open it in Adobe). You have 30 days to respond to these letters, from the date they were mailed from the IRS, using US Postal Service. This could be troubling for employers who may have multiple locations, or a different mailing address than their physical location. Be on the watch for these letters and communicate to all involved the importance of these letters getting to the appropriate person/department in your organization. The letter will indicate the amount of the liability payment (penalty), and a description of the actions the IRS will take if the ALE doesn t respond in a timely manner. 6

7 What do I do? Respond asap state your case You will need your documentation Measurement periods (standard and initial if applicable) Proof of offer/acceptance or declination What do I do if the information is wrong or I disagree? Follow the instructions in the letter to provide corrected information for consideration by the IRS. You must provide a full explanation (facts, dates, proof) of why you disagree, and indicate changes needed on Form (PTC Listing). You must sign the statement. Return all documents as instructed in the letter by the response date. The IRS will reply with an acknowledgement letter (227 series) informing you of their final determination and your rights to appeal their decision. 7

8 The IRS If response form is not received in time, or you do not respond at all: The IRS will assess the payment and will issue a Notice and Demand for Payment (Notice CP220). The notice will give information on how to pay the assessment payment. If you don t respond, IRS determines you agree and will start assessing interest and penalties. Appeal rights Publication 5 from the IRS. What now? This is not going away. Make sure your management understands the potential fall out! Learn lesson Make changes to process 8

9 Reminder of Penalties Year Penalty A Penalty B 2015 (no penalties for if certain criteria met) $2,080 $3, $2,160 $3,240 Penalty A Didn t offer to at least 70% (95% 2016+) of FT Employees At least one employee received a Premium Subsidy Penalty X ALL FT employees (reduced by 80 FT in only 30 going forward) Penalty B Offer wasn t affordable (or not minimum value) employee enrolled in Exchange AND received Premium Subsidy Penalty X FT employees who received premium subsidies 9

10 2017 and 2018 Affordability Safe Harbor Percentages Year Penalty A Penalty B 2017 $2,260 $3, $2,320 $3,480 Year Percent % % % % % 10

11 Steps to take Take steps to make sure that IRS letters are routed to the right person at your company You may want to name a person responsible for the responses Make sure you have access to all the necessary data from your 2015 (and 2016) ACA reporting process and information Have a speedy process in place to check whether any of the penalties the IRS found actually apply, whether the penalty calculations are accurate, and what your response will be, and If you have a benefits attorney, general counsel and/or CPA, make them aware of the letters. IF you used a payroll company or stand alone vendor for processing your 1095s/1094s, make sure you can access past years data. May be an expense involved with opening prior years May need to recreate reports if not readily available 11

12 Documentation Identify and gather documentation on your measurement periods used in those reporting years. Review your eligibility guidelines in your Summary Plan Descriptions. Review payroll records, benefit records, hours worked and premium costs that were reported on the 1095C. Be prepared to show how you determined someone was not eligible for the offer of insurance or if they were eligible, why you did not offer insurance. 12

13 Misc Subsidy Appeal Letters - Remember those? They can be used in your defense as documentation. Have access to these and your responses Stating you did not get a Subsidy Appeal letter is not a defense. ********************************************************************* Good Faith Effort Relates to incorrect or incomplete forms Data/Transmission Errors Does NOT apply to Offers of Coverage, Reporting Deadlines or FT determinations 13

14 Wrap Up Summary Letter 226J - You have 30 days to respond (includes mailing time, distribution time and review and gathering of documentation). Form Employee Premium Tax Credit Listing lists the full time employees being used to assess a penalty. Only 10 employees will be listed on each form. Form Response Form (right click on link, save it, then open it in Adobe) If you disagree - The IRS will reply with an acknowledgement letter (227 series) informing you of their final determination and your rights to appeal their decision. If you agree send payment. 14

15 Brenda JM Sabin, CBP, SPHR, SHRM-SCP Dir of HR Compliance & Payroll Solutions