In late 2018, the Internal Revenue Service (IRS) began issuing letters, called Letter 226-J, to inform employers of their potential liability, if any, for an employer shared responsibility payment (ESRP) under the Affordable Care Act (ACA) for the 2016 calendar year.
Employers that are impacted are applicable large employers (ALEs). ALEs are employers with, in most cases, at least 50 full-time employees, including full-time equivalent employees, during the preceding calendar year.
The ACA’s employer shared responsibility rules require ALEs to offer affordable, minimum value health coverage to their full-time employees or pay a penalty. These rules, also known as the “employer mandate” or “pay or play” rules, only apply to ALEs.
The IRS uses the information an ALE provided on Forms 1094-C, 1095-C and individual income tax returns filed by the ALE’s employees to determine if the employer is potentially liable for an ESRP.
If an ALE receives a Letter 226-J, they must respond, generally within 30 days of the date of the letter. The Letter 226-J provides instructions for how the employer should respond in writing.
If the ALE does not respond by the response date, the IRS will send a Notice and Demand (a bill) for the penalty that was proposed and assessed and will be subject to IRS lien and levy enforcement actions.
The IRS outlines the following steps to take if an employer receives a letter:
- Read the letter and attachments carefully. These documents explain the ESRP process and how the information received affects the computation.
- The letter fully explains the steps to take if the employer agrees or disagrees with the proposed ESRP computation.
- Complete the response form (Form 14764) indicating agreement or disagreement with the letter.
- If the employer disagrees with the proposed ESRP liability, they must provide a full explanation of the disagreement and/or indicate changes needed on Form 14765 (PTC Listing). Return all documents as instructed in the letter by the response date.
- If the employer agrees with the proposed ESRP liability, follow the instructions to sign the response form and return with full payment in the envelope provided.
If an employer wants someone to contact the IRS on their behalf, a Form 2848 (Power of Attorney and Declaration of Representative) must be completed and must state specifically the year and that it is for Section 4980H Shared Responsibility Payment.
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