Is your company required to comply with the Affordable Care Act (ACA or Obamacare)? If so, you will recall the struggle in 2016 of counting full-time equivalent employees and learning the codes required to report pertinent information to the IRS.

Unfortunately, if your reporting was inaccurate, you may be subject to employer mandate penalties under IRS Code 4980H.

Recently, the IRS released a sample Letter 226J, which is the notice provided to employers subject to penalties. The release of the sample letter is a strong indication that the employer mandate penalty notices will be forthcoming.

What To Expect

If you are subject to employer mandate penalties, the Letter 226J will be accompanied by two other documents, which are important to understand and review.

Form 14764 – Response to Letter 226J
This form should be completed and returned to the IRS regardless of whether you agree with the proposed penalty being assessed.

Form 14765 – Assessable Full-Time Employees
This form lists the assessable full-time employees for the year and code combinations entered on Form 1095-C.

An employee is considered an assessable full-time employee is he or she satisfies the following three-prong test:

  1. The company filed a Form 1095-C on behalf of the full-time employee;
  2. The employees received a premium tax credit for one or more months for the tax year; and
  3. The company did not report on Form 1095-C, a relief provision from the employer mandate penalties for one or more of the months the employee receive a premium tax credit.

Every employee listed on Form 14765 trigged a IRS Code 4980H penalty for at least one month for the tax year. Form 14765 will indicate which months the assessable full-time employee triggered an employer mandate penalty — those months will not be highlighted.

There is no reason to panic if you receive a Letter 226J. Complete Form 14764 and sent it back to the IRS within the timeframe, whether you agree with the penalty assessed or not.

Have questions about your ACA reporting requirements? Attend our upcoming ACA Compliance & Reporting training on December 14, 2017.