Applicable large employers (ALEs) with 50 or more fulltime employees who didn’t offer good enough, cheap enough coverage (i.e., minimum essential coverage that is minimum value and affordable) to enough of their full-time employees (70 percent in 2015) may receive Letter 226J from the Internal Revenue Service (IRS). The notification is sent to employers whom the IRS believes may owe an employer shared responsibility payment (ESRP) (“pay or play penalty”). If you receive Letter 226J, you will want to take the following steps immediately:
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Determine when your response to the IRS is due (it will be 30 days after the date of the IRS letter and should be listed on the first page of Letter 226J);
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Gather copies of Forms 1094-C and 1095-C and determine if you agree with the IRS’ determination; and
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If you agree with the proposed ESRP, you will need to complete the enclosed Form 14764 (ESRP Response) and include the payment (or pay electronically).
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If you disagree with the proposed ESRP:
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Complete the enclosed Form 14764;
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Include a signed statement explaining why you disagree with the proposed ESRP;
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Consider including documentation supporting why you disagree with the proposed ESRP (e.g., payroll tracking information to prove certain employees were not full-time employees);
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If necessary, revise the Employee Premium Tax Credit Listing that sets forth employees who received a premium tax credit (that ultimately triggered the ESRP); and
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Whether you agree or disagree, ensure that all documents submitted include the tax year (2015) and employer ID number in the top right corner.
If in the process of responding to Letter 226J you determine that you made errors in the Form 1094-C authoritative transmittal or Forms 1095-C, you should not enclose corrected returns with your response. Separately, however, you will need to correct any filing errors and submit them to the IRS as soon as possible and furnish any corrected Form 1095-C to the applicable employee.
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