What Is Form ESRP and How Does It Impact Employers?
Learn how Form ESRP affects employers, including filing requirements, payment calculations, and compliance steps to avoid potential IRS penalties.
Employers subject to the Affordable Care Act’s (ACA) employer mandate may receive an IRS notice regarding potential penalties. Form ESRP (Employer Shared Responsibility Payment) details any assessed payments owed due to noncompliance with ACA requirements for offering health coverage.
Understanding this form is essential to avoiding unnecessary fines and ensuring compliance with federal regulations.
Filing Requirements
Employers do not proactively file Form ESRP. The IRS issues it when determining an employer may owe a payment under the ACA’s shared responsibility provisions. This determination is based on data from Forms 1094-C and 1095-C, which applicable large employers (ALEs) must submit annually to report health coverage offerings. If the IRS identifies discrepancies or noncompliance, it sends Letter 226J, which includes Form ESRP outlining the proposed assessment.
Employers receiving this notice should review it carefully. The IRS bases its calculations on reported employee coverage and premium tax credit eligibility. If an employer believes the assessment is incorrect, they can respond with supporting documentation. The response deadline is typically 30 days from the date on the letter, making prompt action necessary.
Calculating Payment Amounts
The Employer Shared Responsibility Payment (ESRP) is determined based on two potential ACA penalties: the Section 4980H(a) penalty and the Section 4980H(b) penalty.
– Section 4980H(a) Penalty: This applies when an ALE fails to offer minimum essential coverage (MEC) to at least 95% of full-time employees, and at least one employee receives a premium tax credit. For 2024, the penalty is $2,970 per full-time employee, excluding the first 30 employees. For an employer with 150 full-time employees who does not meet the MEC threshold, the penalty calculation would be: (150 – 30) × $2,970 = $356,400.
– Section 4980H(b) Penalty: This applies when an employer offers coverage that does not meet minimum value or affordability standards, causing employees to qualify for tax credits. The penalty for 2024 is $4,460 per affected employee. If 10 employees receive tax credits, the penalty would be 10 × $4,460 = $44,600.
The IRS assesses whichever penalty results in the higher amount.
Submitting Payment
Once the IRS finalizes the ESRP assessment, employers must remit payment through the Electronic Federal Tax Payment System (EFTPS), the same platform used for federal tax deposits. Employers must select the correct tax period and payment type to prevent misapplication of funds. If EFTPS is not an option, payments can be made via check or money order, accompanied by a payment voucher provided by the IRS.
Interest and late payment penalties begin accruing if the amount is not paid by the due date specified in the notice. Interest is calculated daily based on the federal short-term rate plus 3%, compounded quarterly. Employers unable to pay in full may request an installment agreement by submitting Form 9465 or contacting the IRS. Approval depends on the employer’s financial situation.
Maintaining Documentation
Accurate record-keeping is essential for ACA compliance and defending against IRS assessments. Employers should maintain records related to health coverage offerings, employee classifications, and affordability determinations. This includes payroll data, timesheets, and workforce schedules to verify full-time employee counts under the ACA’s 30-hour-per-week threshold. Employers should also retain plan summaries, premium contribution structures, and waiver forms signed by employees who declined coverage.
Correspondence with third-party administrators and benefits providers should be preserved, including contracts with insurers, service agreements with payroll processors, and actuarial certifications demonstrating that employer-sponsored plans meet minimum value standards. Employers using safe harbor provisions to determine affordability—such as the W-2, rate of pay, or federal poverty line methods—should document calculations annually.
Responding to IRS Notices
When an employer receives an IRS notice regarding an ESRP assessment, timely action is necessary. The IRS sends Letter 226J, which outlines the proposed assessment and includes Form ESRP. Employers should carefully review the details, as errors in reported employee coverage, premium tax credit eligibility, or worker classification can lead to incorrect penalty calculations.
If an employer disagrees with the assessment, they can formally respond by submitting Form 14764 along with a signed statement explaining the discrepancies. Supporting documentation, such as payroll records, health plan enrollment data, and employee waiver forms, should be included. The response deadline is generally 30 days from the date on the letter, though extensions may be granted upon request. If the IRS accepts the employer’s explanation, the proposed penalty may be reduced or eliminated. If the agency upholds the assessment, it will issue Notice CP220J, which serves as a final determination and includes instructions for payment or further appeal options.