If you’re an eligible employer under the Affordable Care Act (ACA), you must file Forms 1094-C and 1095-C with the IRS. If you don’t, you might receive Letter 5699 and have to pay significant penalties. Let’s learn more about IRS Letter 5699 and what you should do if you get one in the mail.
Why Did the IRS Send Me Letter 5699?
If the IRS sent you Letter 5699, Missing Information Return Form 1094/1095-C, it means two things.
- The IRS did not receive Forms 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Return) or 1095-C (Employer-Provided Health Insurance Offer and Coverage) from your business.
- The IRS believes your business was an Applicable Large Employer or ALE. Letter 5699 will explain the filing requirements for these forms and ask you to explain why you haven’t filed these returns.
Why Did the IRS Think I Was Required to Submit Forms 1094/1095-C?
The IRS may expect you to submit these forms because your business did so in the past. Even if your business has no prior history of filing these forms, the IRS might expect them because other tax-related documents (like W-2 filings) indicate you should be filing these information returns.
What’s an ALE?
A business would count as an ALE for the current tax year if it had at least 50 full-time employees (or full-time equivalent employees), on average, in the prior tax year. Whether or not your business qualifies as an ALE is important because it determines whether or not these two major ACA requirements apply to your business:
- Your business must offer health insurance coverage that meets specific minimum requirements (or make certain payments to the IRS) and
- You must comply with specific information reporting requirements to the IRS.
The latter requirement gives rise to Letter 5699 and the requirement to provide Forms 1095-C and 1094-C to the IRS.
What to Do If You Get Letter 5699 from the IRS
First, you should carefully read the letter to ensure the information concerning your business appears accurate. You should check to see that the letter has your correct employer ID number (EIN) and refers to a relevant tax year. For example, if Letter 5699 refers to a tax year that doesn’t make sense because your business didn’t start until the following year, then you know the IRS might have incorrect information or there’s a mix-up somewhere.
Also, confirm that your business filed the required ACA information returns with the IRS. There’s a chance that someone at your business forgot to prepare and file these forms.
Assuming the letter looks right (at least at first glance), your response to the letter depends on your reason(s) for not filing Forms 1094-C and 1095-C. Note that you’ll usually have 30 days to respond, so you’ll want to act quickly.
If you realize that you didn’t file 1094-C and 1095-C (and you should have), then prepare and file the missing returns as quickly as you can. The longer you wait to file these forms, the greater the chance of facing stiffer penalties.
If you filed the required forms under a different EIN, then send the IRS your correct EIN, along with the name of your business used when filing the forms, as well as the date you filed them.
If you weren’t required to file these forms, then explain why to the IRS. The conditions for when you’re required to file 1094-C and 1095-C can sometimes be complicated and confusing, such as trying to figure out if you qualify as an ALE. In these situations, consider consulting with a tax attorney to confirm whether or not you were required to file Forms 1094-C and 1095-C and help you prepare the appropriate explanation to the IRS.
What If You Ignore Letter 5699
Whatever you do, don’t ignore Letter 5699. If you don’t respond to it in a timely manner, the IRS will escalate the situation. This will likely lead to the IRS sending you Letter 5698 and completing Forms 1094-C and 1095-C on your behalf. This sounds like the IRS is doing you a favor, but they’re not.
These IRS-generated forms will likely contain incorrect information, which could lead to additional problems, like more penalties. If you don’t respond to Letter 5698, the IRS may assign an examiner to your case, who will then try calling you to resolve the situation.
If they can’t get in touch with you or find a resolution, the examiner will open a penalty case against your business. When they do this, the IRS will then send you Letter 5005-A (Information Return Penalty Cover Letter) and Form 886-A (Explanation of Items). These will explain what penalties the IRS is assessing against you and the basis for doing so.
Penalties After Getting Letter 5699
For 1094-C and 1095-C forms that must be filed in 2024, the penalty is $330 for each missing information return, with a maximum penalty of $3,987,000 for the tax year.
However, note that these penalties could double because your business is required to file these returns and provide copies to your employees. Failing to do both could result in a penalty of $660 for each missing return, with a maximum penalty of just under $8 million for a single tax year. To make things worse, these penalties increase yearly as they’re adjusted for inflation.
What Happens After I Respond to Letter 5699?
If your response sufficiently explains why you didn’t have to file Forms 1094-C and 1095-C, then the IRS will close your case. If you filed the forms under a different EIN, the IRS will verify that the necessary information returns were filed and then close your case. If the IRS can’t verify that you used a different EIN, they’ll reach out to you for more information.
If you submit the missing forms late, the IRS will likely assess a penalty, although the penalty amount may vary depending on your reasons for the delay. In some cases, a reasonable explanation for the delay could result in no penalty being assessed.
In situations where the IRS is able to resolve the matter and close the case, they’ll typically mail Letter 5840 (IRC Section 6056 – Information Returns Closing Letter) to your business.
Still Confused About IRS Letter 5699?
The ACA imposes significant reporting requirements on eligible employers, and receiving IRS Letter 5699 is one of the first signs that your business does not meet these requirements. Not responding properly to this letter could result in massive penalties that may cost millions.
If you need help responding to this letter and/or completing the necessary 1094-C and 1095-C forms, contact Wiggam Law. Our tax professionals can walk you through this confusing time and help you avoid another Letter 5699 from the IRS. Schedule a consultation with our team or call us at (404) 233-9800.