In 2010, the Affordable Care Act (ACA) was passed and signed into law, requiring employers with 50 or more full-time employees to offer minimum essential coverage to at least 95 percent of their full-time employees. If coverage isn’t offered or if the coverage offered isn’t affordable, the employer can face an IRS assessment known as an Employer Shared Responsibility Payment (ESRP). It’s important for employers to understand how to navigate the ACA and ESRP reporting requirements and processes. The following options and their requirements during these assessments are highlighted below.
ACA Reporting Requirements
Employers have an annual requirement to report their ACA compliance to the IRS on Form 1094-C, as well as to provide a Form 1095-C to the IRS and each employee. For tax year 2020, the failure to file and furnish these forms results in a penalty of:
- $280 for each failure to file timely the Forms 1094-C and 1095-C with the IRS; and
- $280 for each Form 1095-C not furnished timely to the employee.
When responding late to the IRS in these cases, if the penalty hasn’t been paid or was paid within the past two years, a written request to the IRS requesting penalty abatement can be made. The IRS will abate penalties if the taxpayer can establish a reasonable cause for the reporting failure, such as lack of willful intent, complex filing requirements, corrective action taken upon discovery or reliance on third-party filing services.
ESRP Reporting Requirements
If the IRS deems that an applicable large employer did not provide a plan to some or all of its full-time employees, the IRS will send a Letter 226J, giving the employer the ability to resolve the proposed ESRP assessment. If an employer fails to respond to the letter, the IRS will follow up with another letter assessing the ESRP. Shortly afterward, the IRS will send a bill demanding payment of the ESRP assessment.
In cases where the ESRP has already been assessed, those assessments can be removed by providing proof of ACA compliance to the IRS. Generally, the ESRP unit will reopen cases in which it previously assessed the ESRP against large employers for not providing health insurance and consider any information not previously provided.
We’re Here to Help
Bennett Thrasher’s Tax Controversy team has vast experience providing support to those facing ESRP assessments. Most recently, our professionals successfully helped a client navigate an assessment that was issued for the 2015 tax year by fully reversing it in 2021 – many years after the initial assessment.