What is a 226-J letter from the IRS?

A 226-J letter is a notice sent by the IRS to employers that are not in compliance with the Affordable Care Act (ACA). The letter details penalties related to the employer's failure to provide adequate health coverage or file correct ACA forms. The letter also provides information on how to respond and contest the penalties if applicable.

How does ACA-Track help with 226-J letter responses?

ACA-Track offers tools to help employers track their ACA compliance data, ensuring accurate reporting of employee health coverage. With ACA-Track, employers can easily identify and correct reporting errors, helping them respond to IRS 226-J letters quickly and effectively. The platform also stores detailed ACA data, making it easy to access during IRS audits.

What should an employer do if they receive a 226-J letter?

If an employer receives a 226-J letter, they must respond within 30 days. The response should include an explanation of any discrepancies in the ACA reporting, such as incorrect employee data or missing forms. ACA-Track helps ensure that the information on Forms 1094-C and 1095-C is correct, reducing the risk of penalties and providing a foundation for a timely response.

How can ACA-Track help with ACA reporting errors related to 226-J letters?

ACA-Track automatically detects ACA reporting errors, such as incorrect employee eligibility, missing offers of coverage, or errors in FTE calculations. The platform’s error correction tools help identify and fix issues before forms are filed, ensuring that employers’ data is accurate and compliant with IRS requirements. This proactive approach can prevent penalties and make responding to a 226-J letter much easier.

What happens if an employer does not respond to a 226-J letter in time?

Failure to respond to a 226-J letter within the required timeframe (typically 30 days) can lead to further IRS actions, including enforced penalties. Employers must carefully review the details in the letter, assess the accuracy of the reported data, and take necessary corrective actions. ACA-Track assists by providing real-time tracking and reporting tools to support timely responses and compliance.

Prepare for a 226-J Letter: Expert ACA Guidance from ACA-Track

How to Help Clients Prepare for a 226-J Letter

As a business owner or HR professional, one of the most daunting challenges associated with the Affordable Care Act (ACA) is ensuring compliance with its complex regulations. Among these regulations is the potential for receiving an IRS Letter 226-J. This letter is a formal notice from the IRS that informs employers of penalties assessed due to noncompliance with the ACA’s employer shared responsibility provisions. If you or your clients receive a Letter 226-J, it can be overwhelming, but with the right approach, you can address the issue effectively.

In this blog post, we will explore how to prepare for and respond to a 226-J letter and how ACA-Track can streamline this process to ensure you stay compliant with ACA regulations.

What is a 226-J Letter?

A 226-J Letter is sent by the IRS to an Applicable Large Employer (ALE) when it believes that the employer did not comply with the ACA’s employer shared responsibility provisions. Specifically, this letter is issued when an employee receives a premium tax credit from the Health Insurance Marketplace (Marketplace) for purchasing individual health insurance coverage. The IRS then assesses a penalty and provides details of the penalty amount, how it was calculated, and the action required by the employer.

Typically, these penalties arise from two scenarios:

Failure to offer coverage to full-time employees (and their dependents).
Offering coverage that is unaffordable or does not provide minimum value.

Employers are required to respond to this letter within 30 days to dispute or accept the penalty. If an employer does not respond appropriately, the IRS may take further enforcement actions.

How to Help Clients Prepare for a 226-J Letter

If you’re advising clients or managing ACA compliance for a business, it’s crucial to be proactive in managing ACA compliance to avoid receiving a 226-J letter. Here’s a step-by-step guide to help you prepare for this eventuality:

1. Ensure Accurate Tracking of Employee Hours

Accurate tracking of employee hours is essential, especially for variable-hour employees. Under the ACA, employers are required to offer health insurance to full-time employees (those working 30 or more hours per week). Failure to properly track hours for part-time or variable-hour employees can result in a penalty if these employees are not offered coverage but later receive tax credits through the Marketplace.

ACA-Track simplifies this process by offering variable hour tracking of employees. The software ensures that employers can accurately monitor and report hours worked across all employee categories, including full-time, part-time, paraprofessionals, and substitutes.

2. Utilize ACA-Track’s Snapshot Summary and Data Retrieval

One of the key features of ACA-Track is its unique Snapshot Summary approach, which maintains employee ACA data views over time. This includes historical records such as hours worked, salary details, and insurance status at each snapshot point. In the event of an audit or IRS inquiry, having this easily accessible historical data will help ensure you can respond quickly and accurately to any discrepancies.

3. Review 1094-C and 1095-C Forms for Accuracy

The IRS uses the information from Forms 1094-C and 1095-C to determine if an employer has violated ACA regulations. These forms contain details about the health insurance coverage offered to employees, their status (full-time or part-time), and whether the employer met ACA requirements.

It’s important to ensure that these forms are completed accurately and submitted on time. ACA-Track simplifies this process by generating accurate and timely 1094-C and 1095-C reports that are ready for filing. The platform also allows employers to file their XML file electronically with the IRS, ensuring they meet reporting deadlines.

4. Audit and Correct ACA Reporting Errors

It’s not uncommon for reporting errors to occur, especially when data is pulled from multiple departments (HR, payroll, benefits, etc.). If you or your clients are not using an automated tool for ACA reporting, errors may lead to penalties. If errors are found in the 1094-C or 1095-C submissions, employers can correct them through a process known as “fixing ACA reporting errors.”

ACA-Track’s user-friendly platform includes functionality to detect and correct these errors before filing, reducing the risk of noncompliance and penalties.

5. Understand the Importance of Affordable Coverage

Another key aspect of ACA compliance is ensuring that the health insurance offered is affordable and provides minimum value. An affordable plan is one in which the employee’s share of the premium does not exceed a certain percentage of their household income. If coverage is deemed unaffordable, employees may qualify for a subsidy through the Marketplace, triggering a penalty for the employer.

ACA-Track provides tools for calculating the affordability percentage and ensuring that coverage meets the necessary criteria to avoid penalties. These tools help employers offer affordable coverage to employees, reducing the likelihood of penalties and the need for a 226-J letter.

6. Responding to a 226-J Letter

If your client receives a 226-J letter, it’s essential to act swiftly. Here’s a general outline of the steps to take:

Review the Letter: Understand the penalty, the period it applies to, and the employees involved.
Evaluate the Accuracy of the Information: Determine whether the IRS is correct in its assessment. This involves reviewing employee data, offer of coverage, and whether any errors occurred in the reporting.
Prepare Documentation: Gather any evidence that proves your compliance, such as records of health insurance offers, waivers, and the employee’s eligibility status.
File a Response: Use Form 14764 to respond to the IRS, either disputing or accepting the penalty. It’s critical to meet the response deadline, typically within 30 days of receiving the letter.
Seek Legal or Professional Help: If the situation is complex, seek the assistance of a compliance expert or legal counsel to ensure the response is complete and accurate.

7. Keep Detailed Records

ACA compliance isn’t just about tracking hours or sending in forms; it’s also about maintaining detailed records that can be referenced during audits or in response to penalty letters. ACA-Track keeps all ACA data in one place, enabling easy access for reporting, auditing, and IRS communications.

How ACA-Track Helps Employers Avoid ACA Penalties

With ACA-Track, employers can stay ahead of compliance requirements and avoid receiving 226-J penalty letters altogether. The software streamlines the tracking of employee hours, eligibility monitoring, and the creation of IRS forms. It also helps ensure that the health coverage offered to employees is affordable and provides minimum value. ACA-Track offers:

Variable hour tracking for accurate eligibility determination.
Comprehensive 1095 and 1094 reporting to ensure timely and accurate IRS submissions.
Automatic error detection and correction, reducing the risk of IRS penalties.
Affordable coverage tracking to avoid unaffordability penalties.

Employers who use ACA-Track can be confident that they are meeting their ACA obligations, avoiding costly penalties, and reducing the stress that comes with IRS audits and penalty letters.

Conclusion

Receiving a 226-J letter from the IRS can be daunting, but with the right tools and preparation, employers can address the situation effectively. By using ACA-Track to track employee hours, monitor eligibility, and generate accurate ACA reports, employers can reduce the risk of penalties and ensure ongoing compliance with the ACA. If you’re an employer or HR professional, it’s essential to take proactive steps to stay compliant and avoid the stress of receiving a 226-J penalty letter.

For more information on how ACA-Track can help your business or clients with ACA compliance, visit ACA-Track today!