ACA and IRS Letter 5699
We recently received a call from a company that had received a Letter 5699 from the IRS. They were wondering what it meant, what they needed to do, and if they should panic. While you should not panic, you do need to pay attention to this important letter.
What is a Letter 5699?
A Letter 5699 is sent by the IRS to employers who have not complied with ACA reporting requirements. It is an inquiry asking why the employer has not filed the Forms 1094-C and 1095-C to the IRS in previous calendar years. This letter must be responded to within 30 days of receiving the letter. A Letter 5699 informs an employer that the IRS believes they may have been an Applicable Large Employer (ALE) for the tax year(s) in question and, as a result, certain reporting requirements were due, but have yet to be received by the IRS. The letter will provide important information to the employer so they can learn more about whether they are an ALE during the tax year(s) in question. (NOTE: An ALE is an employer with 50+ Full-Time Equivalent Employees).
How Can Employers Respond?
Employers have 30 days to respond to the letter using one of the five following options as their response:
- The employer was an ALE for the tax year(s) in question, but filed its Forms 1095-C with a different entity;
- The employer was an ALE for the tax year(s) in question and is including the Form 1094-C and 1095-C with its response to the Letter 5699 (note, this is only an option if the employer has fewer than 250 Forms 1095-C);
- The employer was an ALE for the tax year(s) in question and will be filing the Form 1094-C and 1095-C with the IRS by a specified date (not more than 90 days from the date on the Letter 5699);
- The employer was not an ALE for the tax year(s) in question; or
- Another reason with a statement explaining why the employer has not filed the Forms 1094-C and 1095-C and the actions the employer plans to take to remedy the situation.
Why Did I Get This Letter?
By receiving this letter, the IRS is putting your company on notice that you MAY be an ALE. An employer’s ALE status is based on the prior calendar year’s hours of service. All companies would be wise to take a minute to determine if your company is, in fact, an ALE by doing two quick calculations:
1. Add the hours of service accumulated by your workforce for each calendar month; and
2. Never include more than 120 hours of service in any calendar month for an employee. Once you have this calculation, divide the number by 120 to get an employers ALE number for the calendar month. After an employer does this for all 12 calendar months in the calendar year, add the total and divide by 12. If an employer’s number is 50 or more, they are an ALE, unless the seasonal worker exception applies.
What if I have multiple entities?
If your company has multiple entities and you are part of an ALE member control group, you may have filed your 1094-C and 1095-C under the wrong entity. This sometimes happens, so your company will want to ensure you are filing under the correct EIN. If this was the case, the IRS is not currently requiring employers to refile the Forms 1095-C, but the employer will have to correct their filing for future years and follow the proper protocol.
What If I my company did not file?
If your company is an ALE and did not file the 1094-C and 1095-C for the tax year(s) in question, there could be serious consequences, including potential penalties. If you are an ALE and are not filing properly, or are not offering the insurance coverage that complies with ACA requirements, HR Strategy Group recommends you consult with an attorney or a benefits broker to assist you to ensure compliance with federal laws.
What if I expect to be an ALE in 2019?
If your company has grown and you believe that you be an ALE in 2019, we can help you ensure that your processes are compliant with ACA.
Please contact us if you would like referrals for either an attorney or benefits broker. We are here to help you through this process and get you in front of the experts in this arena.