Employers need to respond to IRS ESRP letter within 30 days, experts warn

The IRS has started sending Letter 226J to employers for the 2015 plan year, which an applicable large employer (ALE) is likely to receive if the IRS determines that, for at least one month during the year, one or more of the ALE’s full-time employees was enrolled in a qualified health plan for which a premium tax credit was allowed. According to experts at an ADP-sponsored webcast, The Time is Now for Best Practices for Managing IRS ACA Penalties, employers need to be “extremely mindful” of the 30 day response date.

“You need to make sure that when your organization receives this letter, you are locating it and addressing it right away,” said Ellen Feeney, VP Legal Council for ADP LLC. “On the first page of the letter, you will see the response date, which is 30 days from the date of the letter. This is when the return for the letter is due, and you are definitely going to want to mark that date on your calendars.”

If an employer fails to respond to Letter 226J within the 30 day timeframe, or perhaps responds late, the “IRS will assess the proposed amount and will issue a notice and demand for payment,” said Alison Duronslet, Agency Relations Analyst, ADP LLC. “Once the IRS demands payment, interest begins to accrue and will continue to accrue until the entire balance is paid.”


The employer shared responsibility provision (ESRP) rules apply only to ALEs, which are generally employers that had an average of 50 or more full-time employees (including full-time equivalent employees) during the preceding calendar year. Penalties for the ESRP are set forth in Code Sec. 4980H.

“Letter 226J serves as the employer’s official notification that a full-time employee received a premium tax credit and that the IRS believes the employer may owe a payment,” Feeney continued. “Letter 226J is not a formal notice and demand for payment. It’s really the first step in the employer mandate enforcement process. It gives the employer time to review the information from the IRS and provide a response.”

According to Duronslet, “If the employer agrees with the assessment in Letter 226J, employers should sign the Form 14764-the Employer Shared Responsibility Payment Response Form, and check the payment option selected. If in agreement, the employer will need to remit payment to the IRS by the response date listed on the first page of Letter 226J.”

However, if the employer disagrees with the assessment, they must respond to Letter 226J by submitting: (1) code corrections on Form 14765, and (2) a signed statement describing the changes that should be made to 2015 Forms 1094-C and 1095-C. Employers are allowed to include supporting documentation, and the IRS will then respond to the employer’s letter with Letter 227. “If the employer continues to disagree with the assessment after receiving Letter 227, the employer may request a pre-assessment conference with the IRS Office of Appeals,” Duronslet noted.

Additional time needed.

If an employer receives Letter 226J and wants additional time to provide a response, it is essential they contact the IRS right away. “Keep in mind that if you request additional time, you might not be given too much time,” said Feeney. “We have heard of an employer that requested additional time, and they were given an additional two weeks to respond. So you really want to be working toward that 30 day response time, but if you do need additional time, you really need to contact the IRS right away.”

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