Did you receive IRS letter 226j?

ACA Compliance: Navigating IRS Letter 226J

Note: While informative, this blog post is not a substitute for professional ACA compliance advice. Need tailored ACA compliance advice? Don’t worry—Doyle offers free consultations to discuss your specific needs. Contact us today!

The Affordable Care Act, or ACA as it commonly referred, was put in place to provide affordable health care to working Americans. There has been a lot of confusion about what this means for businesses. The rules are not straight forward, and many companies have not been able to properly follow them and have become non compliant.

The general understanding of the rules is that all companies who have over 50 full time employees are required to provide health insurance to their employees. These companies are called Applicable Large Employers, or ALEs. However, the small details of these requirements can be hard to understand, and even harder to put into practice. The misunderstanding of these requirements have led to some of our clients getting into some hot water with the IRS.

We have been getting calls from our clients about letters they have been receiving saying that they are not compliant with the rules and now owe very hefty fines to the IRS. This letter is called IRS Letter 226J. Basically what this letter states is that your company has not properly followed the rules and are now responsible for paying Employer Shared Responsibility Payments, or “ESRP” which is effectively a punitive tax imposed under the Affordable Care Act.

The rules governing who constitutes an ALE can be difficult to understand. Another confusing part is that the mandate requires only that an “offer” of coverage be made to 95% of full-time employees. The health care plan does not need to be accepted by every employee, just offered to them. The mandate also requires that the health plans offered provide minimum coverage and minimum value. Arguably the most difficult rule for employers to follow, the coverage offered must be “affordable” to the employees. We all know the term “affordable” is subjective and varies depending on who you ask.

So, as you can see, this has been a difficult process to navigate. As the IRS is ramping up their enforcement of these rules, more and more businesses are receiving letters saying they are non compliant and now owe a large amount of money for not following the rules.

If you have received the IRS Letter 226J, don’t get too alarmed or take any immediate action. We are here to help. We have been working with our clients to determine where they can make changes to become more compliant and reduce the amount of the ESRP that the IRS says you owe. We have successfully worked with a number of clients to reduce this amount and get them set up for success moving forward.

If you have received this notice and would like to get more information or setup a consultation, please do not hesitate to contact us. We know how confusing and scary this can be for businesses owners and we are here to help!

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