The IRS has been busy lately issuing additional penalty letters for employers’ apparent failure to offer health benefits in 2016. These are called 226J letters.
So far, all of the penalty letters we’ve seen have been for employers that either shouldn’t owe a penalty, or should owe much less than the assessed amount. Reasons for the erroneous assessments include:
- The 1094-C form for 2016 (filed in 2017) incorrectly indicated that the employer did not offer Minimum Essential Coverage (MEC) to at least 95% of its full-time employees. Typically, this is because Column (a) on page 2 of the form was left blank or marked “no” when the answer should have been “yes.”
- The IRS’s system interpreted the 1094-C as saying MEC was not offered, even though the form indicated it had been offered for all 12 months of the year (In Column (a) on page 2, Line 23 was checked “yes” and lines 24 through 35 were left blank). This is the same glitch we saw with 2015 penalty letters, but the IRS still hasn’t fixed it.
If you receive a 226J letter, your first step should be to pull the 1094-C you filed in 2017 and see if page 2, column (a) was answered correctly. Even if the penalty is due to an error on your form, the penalty amount is likely to be reduced or completely eliminated as long as you actually offered MEC to 95% of your full-time employees in 2016.
As always, fee free to contact me or your Account Executive for additional information and guidance.
By Julie Athey, Director of Compliance, The Miller Group