Employer Mandate

by Mark Lam, Assurance

The IRS is reportedly now in the process of sending out Letter 226J notices to employers who they believe incurred employer mandate penalties for 2015. We posted an earlier blog about the overall process - here, let's discuss a battle plan for dealing with the situation if you get notified of a penalty assessment.

First, what's the strategy for dealing with a 226J?

  1. Make sure you set up an administrative "wall" around the information such that management doesn't have access to the names of the employees that are causing you to incur a penalty. You'll want this to potentially avoid retaliation claims later if the employee is terminated down the road and claims their termination was a result of the penalty assessment.
  2. Compare your 1095C data to what the IRS is indicating. Did they properly transpose your codes into their system? If they don't match, you'll have the ability to make corrections as part of the 226J process. If they do match, then you'll want to then verify the original reporting you sent to the IRS was correct (more on this below).
  3. If, as part of your response challenging the penalty, you want to send enrollment or other data to the IRS, be mindful of HIPAA privacy considerations. Seek competent legal counsel before simply forwarding information to the IRS to avoid HIPAA complications.

Next, replying to a 226J notification basically will require you to redo parts of your reporting for 2015, so the best way to prepare is to gather up all the data you'd need to recreate the 1095C from scratch, including:

  1. Determine whether you were actually an "applicable large employer" for 2015. Did you average 100 or more full-time equivalent employees from July 2014 through December 2014?
  2. Make sure you have access to the 1094C and all of the 1095Cs filed for 2015, including the date they were filed (timely filings, even if incorrect, at least won't incur a "late filing" penalty on top of any mandate violations).
  3. Review your full-time employee determination method for 2015. Did you use the monthly or lookback method? This will need to have been documented somewhere. Have this handy in order to evaluate potential revisions to the IRS' data. Use this to re-evaluate the employee's status for each month where a penalty was assessed.
  4. Review your benefit offerings for 2015 and how they were communicated to employees. That documentation will be useful to determine if the coverage was affordable and whether it met the minimum value standard.

The timeline for responding to a 226J is short - 30 days from the date the notice is printed - so gathering this data now may save precious time in a couple of weeks. To assist, Assurance hosted a webinar reviewing these steps and answering questions. We'll also host open conference calls in December for follow-up questions and general discussion. We'll publish that schedule soon.

In the meantime, reach out to an Assurance representative if you have any questions or if you've already received a 226J.

Information contained herein is not intended to constitute tax or legal advice and should not be used for purposes of evading or avoiding otherwise applicable regulatory responsibilities as issued by the federal or state government(s) and/or taxes owed under the Internal Revenue Code. You are encouraged to seek advice from your legal or tax advisor based on your circumstances.

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