IRS notice
IRS Letter 226-J: What It Means and How to Respond
The IRS's first notice to an applicable large employer that it may owe an employer shared responsibility payment under section 4980H.
Reply by the date on the notice
The response date on the letter is generally 30 days from the letter's date, according to the IRS; if more time is needed, contact the IRS using the information in the letter before that date.
Letter 226-J is the IRS's proposal that an applicable large employer may owe an employer shared responsibility payment under the Affordable Care Act, because at least one full-time employee received a premium tax credit. It is not a bill. Review the Forms 1094-C and 1095-C you filed for that year, then return Form 14764 agreeing or disagreeing, with corrections on Form 14765, by the response date on the letter.
What this notice is telling you
- The IRS believes the employer was an applicable large employer (generally an average of at least 50 full-time employees, including full-time equivalents, in the prior year) for the year named.
- At least one full-time employee was allowed a premium tax credit for Marketplace coverage for at least one month, and the IRS found no affordability safe harbor or other relief on file.
- The proposal is built from the Forms 1094-C and 1095-C the employer filed and from employees' individual returns.
- The letter includes a month-by-month summary table, Form 14764 (ESRP Response) and Form 14765 (Employee Premium Tax Credit List).
- Nothing is assessed yet; the amount is a proposal the employer can accept or contest.
What to do
Note the response date
Find the response date on the letter, generally 30 days from its date. If you need more time to gather records, contact the IRS at the number in the letter before the date passes.
Pull the year's ACA filings
Get the Forms 1094-C and 1095-C as filed for that year, along with payroll hours and benefits enrollment records. These forms are often produced by a payroll or benefits provider, so request the filed versions from them.
Work through Form 14765 employee by employee
For each employee listed, check whether the person was full-time in each month shown, whether coverage was offered, and whether a safe harbor or other relief applies that was missing or misreported on the 1095-C.
Complete Form 14764
Mark whether you agree or disagree. If you disagree, explain fully and show the changes on Form 14765. If you agree, sign and return the form with full payment as the letter instructs.
Authorize a representative correctly
If someone will handle the case for you, file Form 2848 that specifically lists the year and the section 4980H Shared Responsibility Payment; a general authorization for income tax does not cover it.
Common grounds for disagreeing
Because the proposal comes from the employer's own information returns, many disagreements come down to what the 1095-C did or did not report. Typical points to check:
- The employee was not full-time in some or all of the months listed, for example a new hire or an employee whose hours varied.
- Coverage was offered for the month but the offer was not reported, or was reported incorrectly.
- An affordability safe harbor applied but was left off the form.
- The employer was not an applicable large employer for that year.
Support each point with records rather than a general statement. Haigler CPA Group can review the filings and records against the IRS list, prepare the Form 14764 and 14765 response, and correspond with the IRS under Form 2848. We do not run payroll or produce ACA forms; we work from what your provider filed.
What happens after you respond
| Letter | What it means |
|---|---|
| 227-J | Your signed agreement was received; the payment will be assessed and the case closed. |
| 227-K | The payment has been reduced to zero; the case is closed. |
| 227-L | The payment was recalculated; you can agree or request a meeting with a manager and/or Appeals. |
| 227-M | The payment did not change; the same options as 227-L apply. |
| 227-N | Reflects the Appeals decision; the case is closed. |
If you still disagree after Letter 227, you can request a pre-assessment conference with the IRS Independent Office of Appeals in writing by the response date on Letter 227, which the IRS says is generally 30 days from its date. Publication 5 explains how to prepare a protest.
If Letter 226-J is ignored
If the employer does not respond to Letter 226-J or to Letter 227, the IRS says it will assess the proposed payment and issue Notice CP220J, a notice and demand for payment. Responding by the date keeps the review, and any Appeals conference, before the payment is assessed. The IRS lists installment agreements among the payment options after CP220J.
Want a CPA to deal with it?
Bring the notice to a free consultation, in person on James Island or by video. We read it with you, tell you what it means for your account and, if you want us to, take over the response once you sign Form 2848.
Tax Controversy — IRS audits, penalty abatement, appeals, and back-tax resolution.
Sources
By Haigler CPA Group. Updated . Notices are revised from time to time, so go by the wording and dates on your own notice. The information on this site is general in nature and is not tax, legal, or accounting advice for your situation. Tax law changes and the right answer depends on facts we would need to review with you. Please speak with a qualified professional before acting on anything you read here.
Questions about Letter 226-J
Do we have to pay the amount on Letter 226-J now?
Only if you agree. The IRS describes the letter as a proposal. Employers do not pay before receiving Notice CP220J unless they sign the agreement, in which case the letter asks for full payment with the signed response.
Why does the letter list employees who never asked us for coverage?
The list shows full-time employees who were allowed a premium tax credit on their own returns. Whether the employer owes anything depends on whether coverage was offered to them, whether they were full-time that month, and whether a safe harbor applied.
Our payroll provider filed the 1095-C forms. Who answers the IRS?
The employer is responsible for the response. The provider can supply the filed forms and records, and a representative authorized on Form 2848 for the section 4980H payment can prepare and submit the response.
What is the IRS deciding between Letter 226-J and Letter 227?
It reviews your Form 14764 and any corrections on Form 14765, then sends a Letter 227 that closes the case, shows a revised amount, or confirms the original amount, and explains your next options.
Other notices
- CP2100 / CP2100A: Payee name and TIN mismatches on your 1099sSent to payers whose information returns had missing, incorrect or mismatched payee names and TINs; it starts the B notice and backup withholding process.
- CP161: Unpaid balance on a business tax accountA bill for an unpaid balance on a business tax account, often after a return was filed without full payment or deposits came up short.
- IRS notice lookupEvery IRS notice carries a code. Find yours below to see what it generally means, which date matters, and what to do before that date passes.
Talk to a tax expert
Tell us what you are dealing with and we will tell you how we would handle it.