ESRP Notice? Don’t Panic! You Might Be Able to Reduce Your ACA Penalty

Imagine a typical day at your business. You’re leafing through your mail and find the usual bills, industry publications… and an employer shared responsibility payment (ESRP) notice from the IRS. It states that due to noncompliance with the Affordable Care Act (ACA), you owe thousands of dollars in penalties.

Frantic thoughts go through your mind. Don’t we already offer health insurance to our employees? Didn’t we fill out our forms? I thought I read the penalties were removed or there are efforts to repeal some or all of it?

The situation surrounding the ACA can be confusing. So it’s not surprising that as of July 2018, the IRS had issued over 30,000 ESRP notices assessing over $4 billion in penalties. And many of the businesses receiving them may not understand what they did wrong.

Thankfully, there’s good news. We’ve found that in some cases, these ACA issues can be resolved and the fines reduced or even erased altogether. It just takes a second set of eyes with knowledge of the requirements and best practices in documenting your efforts. And the best place to find that is a team that includes human resources professionals and experienced CPAs.

Here are a few recent examples of ESRP notice concerns we’ve seen at our firm, and how we were able to help.

Document Everything!

One of our nonprofit clients was facing an $80,000 penalty on its ESRP notice—a big hit for any organization, but particularly painful for a nonprofit. This client had a non-calendar year health plan that added to the complexity in completing their ACA informational returns.

While not a terribly unusual setup, easily made errors on the forms—using the wrong codes, miscounting FTEs, not asking for all available transition relief—triggered the penalty. Once we pieced this information together and communicated it to the IRS, the client’s penalty was completely waived (obviously, much to their relief).

Check the Box

Sometimes, a penalty letter can be triggered by simply missing a checked box. A client came to us with an ESRP notice assessing a $6,000 fine. After looking at their forms, reviewing their FTE and benefits data and asking questions, we found that by making a few simple corrections and explaining the errors to the IRS, we were able to get the matter cleared up and within two weeks the fine was removed.

Make a Molehill out of a Mountain

Even if a fine seems insurmountable, don’t panic right away. A multiple-entity client was facing almost $550,000 in penalties for noncompliance with the ACA. Considering that this client owned around 20 different entities, there was a great deal of confusion regarding how to handle each one and which to combine for ACA purposes.

We performed a thorough review of their records and found two main issues:

  1. They misunderstood the ACA rules when it comes to smaller (under 50 employees) companies that the IRS considers affiliated.
  2. Like many companies we have worked with, they miscounted their full-time employees and did not fill out their forms correctly.

After significant research on all the affiliated companies we found that, over a two-month period, we were able to craft a response and present a case to the IRS that corrected errors, explained the complex structure, and requested available relief.

The result? The fine was drastically reduced to $43,000—less than 10% of the original penalty!

Some employers incorrectly think that all penalties have been removed and they do not need to worry about forms or penalties for 2018. Not true! The penalties remain in place for both individuals and employers. Not until the 2019 reporting year is the individual mandate penalty removed. If you are an applicable large employer (ALE), you still need to make sure you are in full compliance with the ACA in 2019 and ESRP notices should be on your radar.

The notices sent earlier this year covered the 2015 plan year; the IRS started mailing them for the 2016 plan year last summer. In the event that you receive an ESRP notice from the IRS, your first move should be to get help.

Human resources consultants and CPAs work together to review your unique situation from human resources and accounting perspectives and find the best way to fix it. And don’t delay! If you get a notice, you only have 30 days to respond or pay.

You don’t have to go it alone in the face of steep IRS fines. If you’ve received an ESRP notice, contact James Moore’s HR Consulting Team for more information on how to resolve your ACA issues as quickly and inexpensively as possible.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.