What to do if you receive letter 226-J from the IRS

A gavel and penalty symbol

How to Respond to Letter 226-J

Hello again,

If you receive letter 226-J, the penalty will almost certainly be tens or hundreds of thousands of dollars. The Affordable Care Act is complex and very different from any other required government reporting.

You will need experienced help with your response.

Passport Software, Inc. has been an IRS approved ACA software vendor and transmitter, a service provider, and a consulting resource since the very beginning.

If you have ignored the requirements of the ACA, the best we’ll be able to do is make sure you haven’t over-reported your number of full-time employees.

If you have made a good-faith effort to comply but received an unexpected or larger than expected penalty, we can analyze your compliance and help you contest and respond to your 226-J letter.

Every 226-J client we’ve worked with has had their penalty drastically reduced or eliminated.

Understanding what the 226-J says

The 226-J letter is the IRS’s notification that you have been assessed an Employer Shared Responsibility Provision (ESRP) penalty for ACA violations. The 226-J will include:

·         Tax Year of the violation, contact information, and the response deadline at the top of the letter

·         A penalty amount with written explanation

·         An itemized ESRP summary table with explanation

·         Form 14764—your response, including whether you accept or disagree with the penalty

·         Form 14765—the Employee Premium Tax Credit Listing, which indicates your employees’ reported 1095-C information and months where penalties were assessed

The types of violations

4980H has two types of penalties—sometimes referred to as the sledgehammer and the tack hammer.

·         Section 4980H(a) occurs if you did not offer affordable, qualifying coverage to at least 95% of your full-time employees.  If you did not meet that threshold, the $2,320 penalty (indexed each year) is multiplied by the total number of full-time employees.  That means if you have 44 full-time employees and only offer 41 of them qualifying coverage, it is a six figure penalty.

·         Section 4980H(b) is triggered when you 1) do not offer qualifying coverage to a FT employee, 2) the employee enrolls in coverage on the exchange, and 3) the employee receives the Premium Tax Credit on their tax return.  The Section 4980H(b) penalty is higher on a per-employee basis ($3,480 with yearly adjustments), but unlike the multiplier of the type Section 4980H(a), it only applies to that employee and is prorated only for the months of violation.

We can help

Call Passport if you have received a 226-J penalty notice. We’ve saved our clients millions of dollars in undue penalties.

Contact Adam: 800-969-7900 ext. 132
email: amiller@pass-port.com

Adam is an industry-recognized ACA authority and contributor to HR Tech Weekly and Business Innovators Magazine.

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