ACA and Play or Pay—IRS Letters 226-J Arrive

We’ve heard some employers received 226-J notices from the Internal Revenue Service (IRS) saying they could owe potential “play or pay” Affordable Care Act (ACA) penalties for 2015. Some of these preliminary assessments are the result of mistakes in reporting or other errors. What should you do if you get a Letter 226-J from the IRS?

We’ve heard some employers received 226-J notices from the Internal Revenue Service (IRS) saying they could owe potential “play or pay” Affordable Care Act (ACA) penalties for 2015. Some of these preliminary assessments are the result of mistakes in reporting or other errors. What should you do if you get a Letter 226-J from the IRS?

Background

If your organization is an applicable large employer (ALE), 2015 was a year you might like to forget. That was the first year you had to keep track of whether you offered your full-time employees health coverage in accordance with the ACA. You were struggling to count up your full-time equivalent employees and track whom you offered health care coverage to and in what months. Why? Because in early 2016, you had to report this information to the IRS on Forms 1094-C and 1095-C.

While you may have forgotten 2015 the IRS has not. It is currently investigating employer-sponsored offers of health coverage for 2015, and sending preliminary penalty notices, Letters 226-J, to employers who may owe money to the IRS under Internal Revenue Code Section 4980H.

Here’s an excerpt from Letter 226-J and a link to the official sample.

What to Do

If your organization offered health coverage to eligible employees in 2015, keep those records handy. If you receive an IRS Letter 226-J, it would be wise to seek legal counsel from an employee benefits attorney. Each Letter 226-J includes a paper Form 14764 for responding to the IRS. You should respond as soon as possible.

Here are questions and answers from the IRS on responding to Letter 226-J, and newsletters from Accord Systems and ACA Times with more detailed information:

What Could Come Next

In early 2018, the IRS published CP220J, a sample notice of an employer shared responsibility payment due. If it still believes you owe penalties after reviewing your response (or lack thereof) to its initial Letter 226-J, the IRS would send you a bill like this. Here’s a link to the official sample CP220J letter and questions and answers on CP220J from the IRS. While the Letter 226-J is a preliminary notice, the CP220J would be your actual assessment.

Summing It Up

The IRS is notifying some employers they might owe ACA employer shared responsibility penalties for 2015. Employers receiving notices from the IRS should respond promptly. They should seek professional legal advice, review records from 2015 and correct any reporting inaccuracies. The 2015 reporting period represents the first attempt of employers and the IRS to abide by and enforce the ACA “play or pay” requirements. Chances for either side to make errors were high. Letter 226-J provides an opportunity to dispute or resolve errors.

Lois Gleason, CEBS
Lois Gleason, CEBS
Senior Information/Research Specialist at the International Foundation

 

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