IRS Letter 226-J is a penalty assessment notice sent to employers with 50 or more full-time employees under the Affordable Care Act (ACA). It is the first step the IRS takes to enforce ACA employer mandate penalties.
Why Employers Receive Letter 226-J
The most common reason an employer receives Letter 226-J is failure to submit ACA information filings (Forms 1095-B or 1095-C) for a given tax year. If an employer has not filed for 2015, 2016, 2017, or later years, the IRS may issue Letter 226-J.
Employers can avoid or resolve these issues by properly filing their 1095 forms with the IRS. Using ACA 1095 software simplifies this process by enabling secure electronic filing with the IRS through a Transmitter Control Code (TCC).
What Happens After Responding to Letter 226-J
Once an employer responds to Letter 226-J, the IRS follows up with Letter 227, which comes in five different versions. Each version reflects the IRS’s decision regarding the employer’s response:
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Letter 227K
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The best outcome.
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Confirms the employer’s response was accepted.
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No further action is required, and the IRS closes the case.
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Letter 227L
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A partial win.
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The IRS agrees the penalty should be reduced but not eliminated.
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Employer still owes a reduced penalty.
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Letter 227M
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The least favorable outcome.
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The IRS rejects the employer’s response and upholds the original penalty assessment.
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Why Responding Quickly Matters
Failure to respond to Letter 226-J or Letter 227 can result in:
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Full enforcement of the penalty assessment.
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Accrued interest and additional penalties.
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IRS collection actions.
Employers should act quickly and provide supporting documentation to strengthen their case.
Conclusion
IRS Letter 226-J is the IRS’s first step in enforcing ACA compliance. Employers should take these notices seriously, respond promptly, and use proper filing procedures to minimize penalties.
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