Chapter 13 and the Employer Shared Responsibility Payment (ESRP) Liability

Definition. The Affordable Care Act required applicable large employers (ALE) to offer affordable, minimum value health coverage to full-time employees (and their dependents) or potentially be liable for an Employer Shared Responsibility Payment (ESRP) under IRC 4980H. Section 6056 requires an ALE to file a return, which the ALE does by filing Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and Form 1095-C Employer-Provided Health Insurance Offer and Coverage. The ALE reports certain information about the health care coverage the ALE offered to each full-time employee (and their dependents) for one or more months during the calendar year or reports that the ALE did not offer health care coverage to that employee. The ESRP is assessed based on the information the ALE provides on Form 1094-C and Form 1095-C. There is no form where the ALE self-assesses the ESRP. Because the ESRP depends on whether one or more of an ALE’s full-time employees are allowed a Premiun Tax Credit (PTC) or cost-sharing reduction, the assessment amount is calculated by the IRS, not the ALE.

Letter 226-J. Is a ESRP Preliminary Contact letter issued to notify the ALE of the proposed ESRP that may be assessed and certifying to the employer that one or more of its full-time employees were allowed a PTC. This letter explains how the ESRP is calculated, the proposed amount, and a list of the full-time employees who were allowed a PTC. This letter gives the ALE an opportunity to respond before any liability is assessed or notice and demand for payment is made. A TC 971 AC 782 will be input on IDRS with the date the Letter 226-J is issued.

An ESRP may be assessed under the following circumstances:

ALE did not offer minimum essential coverage (MEC) to at least 95% (70% for 2015) of its full-time employees (and their dependents), and at least one full-time employee was allowed a premium tax credit (PTC).

ALE offered MEC to at least 95% (70% for 2015) of its full-time employees (and their dependents), but at least one full-time employee was allowed a PTC because the employer's self-only coverage was not affordable or did not provide minimum value, or the full-time employee was not offered coverage.

Classification. The ESRP is an excise tax that arises when the IRS issues the Letter 226-J to the employer certifying to the employer that one or more of their full-time employees were allowed a PTC. However, the only court to have addressed when the ESRP arises held that the ESRP arises not when the Letter 226-J is issued, but when an employee enrolls in a qualified health care plan. (In re Creative Hairdressers, Inc., 639 B.R. 320 (Bankr. D.Md. 2022).) The enrollment year and the Letter 226-J issuance date therefore need to be considered when determining to file a pre-petition claim, post-petition claim, or both to protect the IRS’s interests and ensure that the IRS has filed a timely claim. For purposes of filing a protective claim in bankruptcy, assume that the enrollment date is November 1st of the year before the ESRP year. The date the Letter 226-J was issued is identified by a TC971 AC 782 in the MFT 43 module.