How to Respond to an IRS 226-J Letter: A Detailed Guide for Employers
If your company has received an IRS Letter 226-J, it means the IRS has identified potential issues with your Affordable Care Act (ACA) compliance and is proposing penalties. Understanding what this letter entails and how to respond effectively is crucial to minimize or avoid costly fines.
In this blog post, we’ll walk you through the essentials of an IRS 226-J letter, why it matters, and the steps your company should take in response. We’ll also highlight how ACA-Track, a leading ACA compliance solution, can simplify your ACA reporting and tracking efforts—helping you avoid these letters in the first place.
What Is an IRS 226-J Letter?
The IRS 226-J letter is a notification sent to Applicable Large Employers (ALEs) who may owe shared responsibility penalties under Section 4980H of the Internal Revenue Code. This section enforces ACA rules requiring ALEs—generally employers with 50 or more full-time employees or full-time equivalents—to offer affordable, minimum value health coverage to their full-time employees.
The letter includes:
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A detailed summary table showing the penalty amount and the months in which penalties apply
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An Employee Premium Tax Credit Listing—employees who received marketplace subsidies, triggering potential penalties
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A response form (Form 14764)
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Instructions on how to respond and the consequences of ignoring the letter
Failure to respond within the specified timeframe (typically 30 days) can lead to additional penalties or enforcement actions.
Why Did My Company Receive a 226-J Letter?
The IRS issues a 226-J letter if they believe:
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Your company did not offer coverage to full-time employees
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The coverage offered was not affordable or did not provide minimum value
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Reporting errors occurred in your ACA submissions (Forms 1094-C and 1095-C)
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There were discrepancies in employee eligibility or marketplace subsidy data
Most often, these issues arise due to inaccurate or incomplete employee hours tracking, incorrect data on offers of coverage, or errors in ACA reporting filings.
Immediate Steps to Take When You Receive a 226-J Letter
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Review the Letter Carefully
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Identify the response due date and mark it on your calendar.
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Understand the total penalty amount and review the employee listings associated with penalties.
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Verify if the dates and employee information match your internal records.
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Gather and Review Your ACA Data
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Cross-check your ACA tracking data for each employee listed.
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Confirm the accuracy of hours worked, offers of coverage made, and coverage acceptance or waiver information.
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Investigate any discrepancies in Marketplace subsidy dates versus employment dates.
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Consult with ACA Compliance Experts or Legal Counsel
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Engage a professional who specializes in ACA compliance to evaluate your case.
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They can help determine if your company can reasonably dispute any penalties, such as proving qualifying offers were made or employees did not qualify.
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Prepare Your Response
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Use Form 14764 included with the letter to submit your response.
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Provide supporting documentation and explanations for any errors or issues.
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Implement Corrective Actions
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Address underlying causes of noncompliance.
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Adjust your ACA tracking and reporting processes to avoid future penalties.
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How ACA-Track Can Help You Avoid 226-J Letters
Responding to IRS penalty letters can be stressful and time-consuming. The best way to reduce your risk is to ensure ACA compliance from the start.
ACA-Track is a trusted, data-driven ACA compliance solution that simplifies the entire ACA process, including:
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Accurate Employee Hour Tracking: Collects and monitors actual hours worked across all employee types—including variable hour, part-time, and full-time employees—to ensure correct eligibility determination.
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Automated Eligibility Monitoring: Provides advance alerts when employees meet ACA eligibility thresholds or experience events such as waivers or leaves.
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Comprehensive Reporting: Generates accurate, IRS-ready Forms 1094-C and 1095-C for federal and state reporting.
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Error Detection and Correction: ACA-Track’s user-friendly interface highlights errors and unusual data with color-coded warnings, helping you fix issues before IRS submission.
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Secure, Integrated Platform: Fully integrates with payroll, HRIS, and financial systems, maintaining data security and easy audit retrieval.
Plus, ACA-Track offers flexible plans and pricing, with a dedicated Client Success Advisor to guide you every step of the way.
Learn more about how ACA-Track can streamline your ACA compliance at ACA-Track.
Final Tips for Handling a 226-J Letter
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Don’t ignore the letter. Always respond by the deadline to avoid escalation.
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Keep detailed records of your ACA compliance efforts.
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Use a trusted ACA compliance solution like ACA-Track to maintain accurate data and meet all IRS requirements.
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Coordinate across departments—Payroll, HR, Benefits, and Finance—to ensure comprehensive compliance.
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Stay informed on ACA changes and IRS deadlines annually.
Conclusion
Receiving an IRS 226-J penalty letter can be intimidating, but with a timely, informed response and robust ACA compliance practices, you can manage or even prevent these penalties.
For employers looking to maintain peace of mind, ACA-Track provides an all-in-one ACA compliance solution—handling employee hour tracking, eligibility monitoring, error correction, and seamless IRS reporting.
Visit ACA-Track today to learn how you can protect your business from costly ACA penalties and simplify your ACA compliance.
