What is IRS letter 226J?
449 views | Last modified 1/11/2021 12:22:39 PM EST | Added by ACAwise Team

IRS Letter 226J is a penalty notice issued by the IRS to Applicable Large Employers (employers with 50 or more full-time employees and full-time-equivalent employees) who fail to comply with the Employer Shared Responsibility Provision of the ACA, commonly referred to as the Employer Mandate. 

ACA Employer Mandate

To comply with the ACA Employer mandate, ALEs are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time employees (and their dependents), whereby such coverage must meet Minimum Value (MV) and affordable criteria for the employee. If it doesn't comply, the ALE will be subject to IRS 4980H penalties, known as Employer Shared Responsibility Payments (ESRP), issued to employers by the IRS in Letter 226J penalty notices. 

The penalties are assessed through annual ACA information returns filed with the IRS using Forms 1094-C and 1095-C. If an organization had one or more employees who received a Premium Tax Credit (PTC), the IRS would use the ALEs annual ACA reporting to calculate penalties.

Information in the Letter 226J

The IRS Letter 226J contains the following:
 

• An Employer Shared Responsibility Payment (ESRP) summary table itemizing proposed penalty amount by month and explanation for each month whether liability falls under Section 4980H(a), Section 4980H(b), or neither.
• Form 14764, also called an Employer Shared Responsibility Response Form or an ESRP Response.
• Form 14765, also known as an Employee Premium Tax Credit (PTC) List.
• A brief description of the actions the IRS will take if the ALE does not respond to Letter 226J within an allowed period. 

So, when an ALE receives the letter 226J, they must respond to it within 30 days from the date of the Letter 226J Penalty Notice. If they don't respond, the IRS will assess the amount of the proposed ESRP shown in Letter 226J and will issue a Notice and Demand for Payment (Notice CP 220J). The notice offers directions to pay the penalty.

If you are an ALE, received the IRS Letter 226J, please respond to it immediately and don't get blindsided by IRS penalties. In case you are not sure how to respond to it, connect with ACAwise to ensure you're in full ACA compliance and won't receive any unexpected penalty letters in your mailbox. Let us help you through the complete ACA reporting process.