IRS Letter 226-J: Everything You Need to Know

If you have received an IRS Letter 226-J, you have 30 days from receipt of the letter to send your response. Reasonable extensions may be requested and it is best to do so as soon as you expect you will need the extra time. 

What is IRS Letter 226-J?

IRS Letter 226-J is issued to Applicable Large Employers (ALEs) regarding a potential liability for an Employer Shared Responsibility Payment (ESRP). The proposed ESRP is calculated using the data provided in Forms 1094-C and 1095-C of the employer’s Affordable Care Act (ACA) reporting and the individual income tax returns filed by the employees.

What do I need to do?

You need to read your Letter 226-J thoroughly and carefully.

This document explains the ESRP process and how the information received from your ACA filing and your employees’ income tax returns affect the ESRP computation. It also details the next steps to take if you agree or disagree with the proposed ESRP amount.

  • You need to complete the response form, Form 14764 – ESRP Response, indicating agreement or disagreement with the proposed amount.
    • If you agree: Follow the instructions to sign the response form and return it with full payment.
    • If you disagree: Provide a full explanation of the disagreement and indicate changes needed on Form 14765 – PTC Listing. Then, return the documents by the response date.

What else should I do?

Call the IRS to request a 30-day extension as soon as possible.

Carefully review the information that you reported in your ACA filing (Form 1094-C and Forms 1095-C) for the applicable year and confirm that the data submitted was accurate. This is the data that the IRS uses to compute ESRP, so it’s important that everything is correct.

If you come across any errors, document the changes that need to be made to the data and include this in your response to the Letter 226-J. Do not file corrected Forms 1094-C and/or 1095-C to report any changes to be made for the tax year in question.

If you would like to allow someone to contact the IRS on your behalf, such as your lawyer or accountant, fill out and send Form 2848, Power of Attorney and Declaration of Representative, to the IRS. Be sure to include the Matter (Employer Shared Responsibility Payment), Tax Form Number (Letter 226-J), and Year or Period in question.

We advise that you keep copies of any and all documents sent in response to Letter 226-J.

Why did I receive an IRS Letter 226-J?

The IRS has determined that you may be liable for an ESRP based on information provided in your Forms 1094-C and 1095-C and your employees’ individual income tax return.

Is IRS Letter 226-J a bill?

No, it is not a bill. It is the initial proposal of the ESRP.

Do I have to pay this right now?

Letter 226-J is not a bill. It is an initial proposal for payment by the IRS. If you suspect the information may be wrong or you disagree with the proposed ESRP, follow the instructions provided in the letter to correct the information with the IRS.

What happens if I ignore the letter?

If you do not timely respond to Letter 226-J, the IRS will send you a Notice and Demand for the proposed ESRP. The payment will be subject to lien and levy enforcement by the IRS and will accrue interest from the date of the Notice and Demand until the total balance due is paid.

Do I have appeal rights?

Yes. The acknowledgement letter details all of your rights including your right to appeal

What’s next?

If you submitted objections or corrections in response to Letter 226-J, the IRS will respond with a Letter 227. This letter will describe further action, if any, to be taken.

If the IRS plans to continue pursuing the ESRP, you have the right to appeal their decision with the IRS Office of Appeals.

BoomTax, The Boom Post, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to engaging in any transaction.

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