The Affordable Care Act (ACA) requires that applicable large employers (ALEs) must offer their full-time employees affordable, minimum value health coverage or be penalized. This mandate is also referred to as ‘pay or play’ or ‘employer shared responsibility’. ALEs are only liable for a penalty if one or more of their full-time employees receive a subsidy for coverage under an Exchange. An employee could receive a subsidy if the ALE didn’t offer health coverage, coverage was unaffordable, or if the coverage offered didn’t provide minimum value.
Prior to 2017, final IRS regulations didn’t provide guidelines on how the rules would be enforced, so no penalties had been assessed. The IRS issued Letter 226-J to ALEs in late 2017 to propose and assess the liability for the 2015 calendar year. The IRS began the enforcement process for the 2016 calendar year in late 2018.
The IRS determines if an ALE may be liable for a penalty based upon the information reported on IRS Forms 1094-C and 1095-C. If you receive a Letter 226-J, you must respond by either agreeing with the proposed penalty or disagreeing with part or all of the proposed amount. Employers must respond to the letter generally 30 days from its sent date.
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