Letter 226J Frequently Asked Questions

The Internal Revenue Service (IRS) updated its online Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act. In Q&As 55-58, the IRS provided long-awaited details on the process that will be used to assess penalties payable by large employers for failure to offer adequate, affordable coverage to 95% of their full-time workforce.

When can employers expect to receive the penalty notices? In response to Question 58, the IRS states that it plans to inform employers of potential liability for penalties related to calendar year 2015 in late 2017.

How does the penalty process work? First, the IRS will issue Letter 226-J informing the employer of potential liability. Liability is triggered by an IRS determination that, for at least one month in the applicable tax year, one or more full-time employees was enrolled in subsidized Exchange (Marketplace) coverage and the employer did not qualify for a safe harbor or other relief.

If we receive a penalty notice, what is the next step? Employers who receive a penalty notice should follow the steps in Letter 226-J to submit an employer shared responsibility response form (ESRP Response) using IRS Form 14764, either agreeing with the proposed penalty or disagreeing with the proposed amount.

What is the deadline to respond? A response date, generally 30 days from the date of issuance, will be shown in the letter. Employers should take care to respond by the response date. If the employer does not respond, the IRS will issue a Notice and Demand for Payment (Notice CP 220-J) with instructions on how to pay the Employer Shared Responsibility Payment amount.

What happens after an employer files a response? The IRS will acknowledge an employer’s response by sending Letter 227 with further direction on how to appeal the proposed or revised penalty assessment. Employers that still disagree can request a pre-assessment conference with the IRS and, following the conference, may appeal the penalty determination.

Where can I get more information? In addition to Q&As 55-58, the IRS released a guide to help employers understand Letter 226-J.

Neither American Fidelity Assurance Company nor American Fidelity Administrative Services provides tax or legal advice and, given the complexity of these laws, we always recommend working with your legal counsel on how the laws impact your specific situation.