Understanding Letter 226-J for Applicable Large Employers
February 14, 2018
Applicable Large Employers (ALEs) are starting to receive the first round of IRS Letter 226-J. The IRS has begun enforcement of the Employer Shared Responsibility Payment (ESRP) rule under the Affordable Care Act (ACA) for the 2015 calendar year. Letter 226-J notifies ALEs of their proposed liability under ESRP. The liability amount is based on information filed with the IRS on Forms 1094-C (filed by the employer) and 1095-C (filed by the individual income tax filer/ALEs employees). Generally, employers will have 30 days from the letter’s date to respond. Further guidance can be located under Section 4980H of the Internal Revenue Code (IRC).
According to the IRS, the following steps should be taken when an IRS Letter 226-J is received (links to instructions and sample forms are provided below):
- Read the letter and all attachments carefully. These documents explain the ESRP process and how the employer’s proposed responsibility was calculated.
- Complete the ESRP Response Form, indicating agreement or disagreement with Letter 226-J.
- If there is a disagreement with the proposed liability, the employer must provide a full explanation and/or indicate changes that need to be made to the underlying calculation on IRS Form 14765 (Employee Premium Tax Credit Listing).
- If there is agreement with the proposed ESRP liability amount, the employer must sign the ESRP Response Form and return with full payment in the envelope provided by the given deadline.
- If the employer needs to appoint a power of attorney or declare an authorized representative to work through the issue with the IRS, the employer must complete IRS Form 2848.
- Should the employer and the IRS not come to an understanding with which either party agrees, there are appeal rights available to the employer.
Learn how to determine if you are an Applicable Large Employer as defined by the ACA:
Understanding Your Letter 226-J:
https://www.irs.gov/individuals/understanding-your-letter-226-j
IRS Form 14764 ESRP Response Form:
https://www.irs.gov/pub/irs-pdf/f14764.pdf
IRS Form 14765 Employee Premium Tax Credit Listing:
https://www.irs.gov/pub/irs-pdf/f14765.pdf
IRS Form 2848 Power of Attorney: