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Understanding IRS ‘Pay or Play’ Penalty Letters

Employers Have Opportunity to Respond Before ‘Pay or Play’ Penalty Assessment

The Internal Revenue Service (IRS) is currently issuing Letter 226-J to certain applicable large employers (ALE)—generally those with at least 50 full-time employees, including full-time equivalent employees, on average during the prior year—it believes owe a penalty for failing to comply with the Affordable Care Act’s employer shared responsibility provisions (“pay or play” provisions). In conjunction with Letter 226-J, employers will receive Form 14764, which they can use to respond to Letter 226-J. Employers who submit Form 14764 to the IRS will generally receive one of 4 letters back:

  • Letter 227-J, which acknowledges receipt of Form 14764 and the employer’s agreement to pay the penalty;
  • Letter 227-K, which acknowledges receipt of Form 14764 and shows that the penalty has been nullified;
  • Letter 227-L, which acknowledges receipt of Form 14764 and shows that the penalty has been revised; or
  • Letter 227-M, which acknowledges receipt of Form 14764 and shows that the penalty amount did not change.

For more information on IRS “pay or play” penalty letters, click here.

Visit our “Pay or Play” (Employer Shared Responsibility) section for more on pay or play compliance.

 

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Certain Employers Required to Electronically File Returns

Employers subject to the Affordable Care Act’s (ACA) information reporting requirements are reminded that the deadlines to file and furnish Forms 1094 and 1095 are quickly approaching. The reporting deadlines in 2018 are for reporting information on the 2017 calendar year, and are as follows:

  • Applicable large employers (ALEs)—generally those with 50 or more full-time employees, including full-time equivalents—must file Forms 1094-C and 1095-C with the IRS no later than February 28, 2018 (or April 2, 2018 if filing electronically). ALEs must also furnish a Form 1095-C to all full-time employees by March 2, 2018.
  • Self-insuring employers that are not considered ALEs, and other parties that provide minimum essential coverage, must file Forms 1094-B and 1095-B with the IRS no later than February 28, 2018 (or April 2, 2018, if filing electronically). These entities are also required to furnish a Form 1095-B to “responsible individuals” (may be the primary insured, employee, former employee, or other related person named on the application) by March 2, 2018.

Electronic Filing Requirements

Reporting entities filing 250 or more Forms 1095-B or Forms 1095-C must electronically file them with the IRS. Additional information on electronic filing can be found on the IRS ACA Information Returns (AIR) Program webpage.

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How Holiday Help May Impact Your ALE Status

Employers May Apply a Reasonable, Good Faith Interpretation of the Term ‘Seasonal Worker’

Employers that hire seasonal workers this holiday season are reminded that there is an exception when measuring workforce size to determine whether they are an applicable large employer (ALE) subject to the Affordable Care Act’s employer shared responsibility (“pay or play”) and corresponding information reporting provisions.

Seasonal Worker Exception

If an employer’s workforce exceeds 50 full-time employees (including full-time equivalent employees) for 120 days or less (or 4 calendar months) during the preceding calendar year, and the employees in excess of 50 who were employed during that period were seasonal workers, the employer is not considered an ALE for the current calendar year. A seasonal worker for this purpose is an employee who performs labor or services on a seasonal basis (e.g., retail workers employed exclusively during holiday seasons are seasonal workers).

Seasonal Worker Versus Seasonal Employee

While the terms “seasonal worker” and “seasonal employee” are both used in the pay or play provisions, only the term “seasonal worker” is relevant for determining whether an employer is considered an ALE. For this purpose, employers may apply a reasonable, good faith interpretation of the term “seasonal worker.” For more information on the difference between a seasonal worker and a seasonal employee under pay or play, please refer to IRS Pay or Play Q&A #26.

Check out our Pay or Play section for additional details.