ACA reporting can be daunting…ACAwise is here to make it easy. The IRS is currently distributing penalty notices for tax year 2017. They will begin distributing the penalties for the 2018 tax year soon. The IRS is really cracking down on ACA reporting penalties in the new year.
There are several different types of penalties, which can get more than a little confusing. There are several different reasons for being issued a penalty and these penalty rates can get VERY expensive. Let’s break them down so that you can better understand what the IRS may be sending your way.
How Will The IRS Notify Me?
If you are being penalized by the IRS…you will know. The IRS sends out a variety of different penalty letters. These are the ACA specific penalty notices that may be landing in your mailbox…
If you have gotten a Letter 5699 in the mail this means that you have failed to file the required ACA information by the required deadlines. This is a precursor to an actual penalty notice. The IRS is basically asking you for this missing information and they want you to explain why you failed to file.
The IRS identifies applicable large employers who have failed to file by looking at the W-2’s that they reported for that tax year. This letter will include some basic information such as the date that this was sent, your taxpayer ID, the tax year in question, and a contact from the IRS that you can reach out to.
The Letter 5699 gives you five options to explain yourself. They require you to choose the most applicable situation and ask you to respond within 30 days. The different situations are basically…
I was an ALE for this tax year and I already filed my Forms 1094-C and 1095-C’s with the IRS before getting this notice.
I was an ALE for this calendar year and I am attaching my Forms 1094-C and 1095-C with this response.
I was an ALE during this tax year and I haven’t filed my Forms 1094-C and 1095-C , but I will within the next 90 days.
I was not an ALE during this year, here’s an explanation.
Other…If you haven’t filed and aren’t able to do so within the next 90 days, explain why here.
If you don’t respond to this letter within the time-frame that the IRS has requested, you will get an actual penalty notice. This will come in the form of a Letter 5005-A.
What Is A Letter 5005-A?
A Letter 5005-A is serious business. If you got this letter from the IRS then this means that you probably ignored their “not so friendly” Letter 5699. They reached out requesting information and you didn’t provide a response in a timely manner…their courtesy ends here.
The Letter 5005-A is not a passive aggressive “why haven’t you filed” message, it’s the next step towards taking action against you. The penalty for failing to report can be up to $540 per form, this adds up very quickly when you have over 50 employees!
You must answer this letter ASAP! This is your opportunity to explain that you have taken some action… any action towards completing your filing requirements.
What Is A Letter 226J?
If you get a Letter 226J in your mailbox you can be sure that the IRS is not inviting you to their birthday party…it’s a penalty notice. This is the initial warning of penalties to come. The IRS will usually give you about 30 days to respond.
The reason that this letter was sent to you is because the IRS has found that you didn’t provide coverage that they deemed “affordable”. They have come to this conclusion because one or more of your employees received a premium tax credit from the government.
What does that mean? It means that the employee was able to find more affordable health insurance from the health insurance marketplace than what you offered them. They were then able to qualify for a tax credit from the government to help cover their premium. The IRS is not happy about that.
The Letter 226j requires you to respond one of two ways…and you must respond.
I agree with this.
I don’t agree with this.
How Should I Handle Penalty Letters?
If you found one of these unpleasant letters in your mailbox…don’t panic. You don’t have to figure it out yourself, you can call the experts at ACAwise. They are available by phone, chat, and email to help you. We are a full-service reporting vendor, and unlike our competitors, we can help you with past year filing. ACAwise can help lower or eliminate your penalties, just reach out to us today!