So, you recently received a Letter 226-J from the IRS regarding your Affordable Care Act. You are not alone!
The IRS began issuing these penalty letters back in 2018, starting with the 2016 ACA reporting year. The IRS continues to issue Letter 226-Js to Applicable Large Employers (ALEs) identified as failing to comply with the ACA’s Employer Mandate for any of the past three IRS reporting years.
Under the ACA’s Employer Mandate, ALEs – organizations with 50 or more full-time employees and full-time equivalent employees – are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents). That coverage must meet Minimum Value (MV) and be affordable for the employee or the company is subject to IRS 4980H penalties.
Why did my company receive this letter?
There could be several reasons:
- Your business filed one or more Form 1095-C – the Employer-Provided Health Insurance Offer and Coverage. The IRS used the information your company provided on Forms 1095-C and 1094-C to determine your company’s potential liability for an Employer Shared Responsibility Provision (ESRP). It may be your company didn’t provide the minimum coverage for full-time employees.
- One or more full-time employees listed on the Form 1095-C received a Premium Tax Credit on his or her federal income tax return.
- Your company is an ALE, but your company did not file Forms 1095-C and/or 1094-C.
Regardless of the reason for receiving the letter, your company must take action.
What does my company do now?
You must address any IRS letter with immediate attention:
- Read the letter and its attachments carefully. These documents explain the ESRP process and how the information used by the IRS affects the computation. The letter also fully explains the steps to take if your company agrees or disagrees with the proposed ESRP computation.
- Complete the ESRP Response Form 14764 indicating whether your company agrees or disagrees with the letter.
- If needed, your company can request more time. Call the IRS and request an extension for your response. Contact your benefits administrator – gather all the information and documentation you will need to respond.
Option 1 – If your company disagrees with the proposed ESRP liability, the next step is to provide a full explanation of the disagreement and/or indicate changes needed on Form 14765 – the Employee Premium Tax Credit Listing. Return all documents as instructed in the Letter 226-J by the response deadline. The IRS will acknowledge your company’s response with an IRS Letter 227. Letter 227 will describe further actions your company may need to take. If your company wishes, it may request a Pre-Assessment Conference with the IRS Office of Appeals within 30 days of the date of the Letter 227.
Option 2 – If your company agrees with the proposed ESRP liability, follow the instructions to sign the response form (Form 14764) and return with full payment in the envelope provided.
Receiving a Letter 226-J from the IRS isn’t necessarily a catastrophe; however, to protect itself from potential catastrophic penalties, your company must gather documentation and respond to the Letter 226-J by its stated deadline.
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