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We are all human, including the people who work at the IRS. And like all of us, sometimes they make mistakes. The only difference is that errors made by the IRS can cost you money.
If for some reason you received a Letter 226J penalty notice from the IRS for not complying with the Affordable Care Act, you will want to review the notice carefully. Your penalty assessment could have been made in error.
If you find that the IRS has made a mistake, it’s your organization’s responsibility to follow-up and correct the record in hopes of avoiding having to pay the penalty.
The IRS has been issuing Letter 226J penalty assessments to employers that failed to comply with IRC section 4980H of the ACA’s Employer Mandate since November 2017. Under the ACA’s Employer Mandate, Applicable Large Employers (ALEs), employers 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) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to IRS 4980H penalties.
We have seen IRS Letter 226J penalty notices that have been provided to us by organizations seeking our help in responding to the notice in the hopes of having the penalty assessment reduced or eliminated. A careful review of the letter can identify critical information that may be missing, such as the names of employees who have been issued Premium Tax Credits (PTCs) from the healthcare marketing place, the date the letter was issued, and the date a response is due to the IRS.
Simply put, without this information, organizations cannot appeal the penalty assessment effectively.
When this information is found missing in the Letter 226J penalty notice, the responsibility falls on the employer to correct the record. If your organization receives a Letter 226J penalty assessment missing critical information or errors, the following steps should be taken:
- If your organization received a Letter 226J penalty assessment missing the Premium Tax Credit Recipients on Form 14765, then you should contact the IRS using the telephone number in the notice to state your case and request a corrected penalty assessment.
- If your organization received a Letter 226J penalty assessment without an issuance date, contact the IRS to verify when the notice was issued.
- If your organization received a Letter 226J penalty assessment without a response date, contact the IRS to verify when a response is required.
- If the IRS requested additional information from your organization regarding a Letter 226J, make sure to submit the requested information before contacting the agency directly.
For many employers, this is an unwanted task that feels like adding insult to injury. However, it’s an extremely important task. Failure to accurately and timely respond to IRS Letter 226J is like you are agreeing with the assessment. That means the IRS will simply threat the failure to respond as acceptance and follow up with a demand for payment of the penalty.
Employers who have received IRS Letter 226J penalty notices should make sure that they are providing a timely response to the information requested in the notice to ensure they are complying with their ACA responsibilities. If this feels a bit overwhelming, you may want to consult with experts who can help you in responding to Letter 226J.
All of the above holds true for employers who may have received ACA penalties for failing to file forms 1094-C and 1095-C with the IRS or furnish 1095-C forms to employees under IRC 6721/6722 for the 2015 and 2016 tax years. These notices focus on the failure to distribute 1095-C forms to employees and/or to file 1094-C and 1095-C forms with the IRS by required deadlines. The IRSis sending the proposed penalty assessments using Letter 5005-A and Form 886-A. These are penalties in addition to penalties for not offering the required healthcare coverage under IRC 4980H.
Whether you have received an IRS penalty notice and want to be sure to avoid receiving more of them in the future or you have yet to receive one, employers should consider undertaking an ACA Penalty Risk Assessment to learn if they are at risk of receiving ACA penalties from the IRS. Some outside experts may offer to undertake this assessment at no cost to employers. Such a review can reap dividends by helping organizations avoid significant ACA penalties issued by the IRS.
