IRS Letter 227-J is a crucial document for employers dealing with potential penalties under the Affordable Care Act (ACA). It represents one of several types of responses from the IRS regarding the Employer Shared Responsibility Payment (ESRP) assessments originally noted in IRS Letter 226-J.
Purpose of Letter 227-J
Letter 227-J is specifically issued to confirm that the employer has agreed with the initial ESRP assessment proposed in Letter 226-J. This agreement signifies that the employer acknowledges their ACA compliance shortfall and the resultant penalty.
Understanding the $3,890 Penalty
The penalty amount, which can be as high as $3,890 per full-time employee (excluding the first 30 employees), is enforced when employers fail to provide ACA-compliant health coverage that meets minimum value and affordability standards. The calculation of this penalty is critical and should be meticulously verified against the employer’s records.
Responding to Letter 227-J
Once an employer receives Letter 227-J, they must take the following steps:
- Review the calculations and the basis for the penalty as outlined in the letter.
- Prepare to make the necessary payments to the IRS as instructed in the letter.
- Consult with legal or tax professionals if there are any discrepancies or further clarifications needed.
Preventing Future Penalties
To avoid future penalties and ensure ACA compliance, employers are encouraged to:
- Regularly review their health coverage offerings to ensure they meet all ACA requirements.
- Utilize ACA compliance tracking tools like ACA-Track to monitor coverage and employee status accurately.
- Stay updated with any changes in ACA regulations that might affect their compliance status.
For more resources on handling IRS communications and maintaining ACA compliance, visit ACA-Track’s service descriptions.
