What Is IRS Letter 226-J? A Complete Guide

Introduction: Understanding Letter 226-J and Why It Matters

If you're asking "what is Letter 226-J," you've likely either received one of these notices or want to understand the IRS enforcement mechanism for Affordable Care Act (ACA) compliance. Letter 226-J is the official IRS notice used to propose Employer Shared Responsibility Payment (ESRP) penalties against Applicable Large Employers who may have failed to comply with the ACA's employer mandate. Receiving this letter signals that the IRS believes your organization owes potentially substantial penalties, making it one of the most consequential tax notices an employer can receive.

Letter 226-J represents the IRS's primary enforcement tool for the ACA employer mandate under Internal Revenue Code Section 4980H. When the IRS data-matching process identifies potential non-compliance, such as full-time employees receiving premium tax credits for Marketplace coverage when they should have been offered employer-sponsored coverage, the agency sends Letter 226-J to initiate the penalty assessment process. Understanding what this letter is, what it contains, and how to respond is essential for any Applicable Large Employer seeking to protect itself from substantial financial consequences.

The stakes involved with Letter 226-J are significant. For tax year 2025, the Section 4980H(a) penalty is $2,970 per full-time employee (minus the first 30), and the Section 4980H(b) penalty is $4,460 per employee receiving premium tax credits. A mid-sized employer with 500 employees could face proposed assessments exceeding $1.4 million. Even employers who believe they were fully compliant may receive Letter 226-J due to data entry errors, miscommunication between the Marketplace and IRS, or mistakes in their ACA reporting. This comprehensive guide explains everything you need to know about what Letter 226-J is, how the IRS uses it, and how to respond effectively.

  • What Letter 226-J is: The IRS notice proposing ACA employer penalties
  • Why you received it: Understanding the IRS data-matching process
  • What's included: Forms 14764, 14765, and 14765-A explained
  • How to respond: Step-by-step guidance for disputing or paying penalties
  • Deadlines and consequences: Critical timelines you cannot miss

What Is Letter 226-J: Definition and Purpose

The Official IRS Penalty Notice

Letter 226-J is the official IRS correspondence used to notify Applicable Large Employers of proposed Employer Shared Responsibility Payment (ESRP) penalties under the Affordable Care Act. When the IRS determines, based on information from your filed Forms 1095-C and Marketplace data, that you may owe penalties for failing to offer adequate health coverage to your full-time employees, Letter 226-J is the mechanism through which they communicate this proposed assessment.

The letter itself is actually a package of documents that together provide the complete picture of the proposed penalty. Understanding what Letter 226-J is requires understanding each component:

  • Letter 226-J itself: The cover letter explaining the proposed penalty and your response options
  • Form 14764 (ESRP Response): The form you must complete to respond to the proposed assessment
  • Form 14765 (Employee PTC Listing): A list of employees whose receipt of premium tax credits triggered the potential penalty
  • Form 14765-A (if applicable): Detailed penalty calculations on an employee-by-employee basis

The IRS sends Letter 226-J via certified mail to the address on file from your most recently filed Form 1094-C. This is a critical point because many employers have the wrong address on file, leading to missed notices and lost dispute opportunities. The letter is dated, and the response deadline is calculated from that date, regardless of when you actually receive it.

Why the IRS Created Letter 226-J

The IRS developed the Letter 226-J process as the formal enforcement mechanism for the ACA's employer shared responsibility provisions. When the ACA was enacted in 2010, it created requirements for large employers to offer health coverage or face penalties. However, the enforcement mechanism took years to implement. The IRS began issuing Letter 226-J notices in late 2017 for tax year 2015, and the process has continued annually since then.

The purpose of Letter 226-J is to:

  • Notify employers: Inform ALEs of potential penalty liability based on IRS records
  • Provide due process: Give employers an opportunity to review and dispute proposed assessments before they become final
  • Identify discrepancies: Allow employers to correct data mismatches between their records and Marketplace information
  • Collect penalties: Enforce the employer mandate for non-compliant employers

Importantly, Letter 226-J is a "proposed" assessment, not a final determination. This distinction is critical because it means you have the opportunity to dispute the penalties before they become legally binding. However, this opportunity is time-limited, and failure to respond properly can result in losing your dispute rights entirely.

Understanding the Letter 226-J Process

How the IRS Identifies Potential Penalties

Before the IRS sends Letter 226-J, it conducts a comprehensive data-matching process that compares information from multiple sources. Understanding this process helps explain why you might receive a letter even if you believe you were fully compliant:

Step 1: Forms 1094-C and 1095-C Analysis

The IRS reviews the Forms 1094-C (transmittal) and 1095-C (employee statements) that you filed. These forms contain information about whether you offered coverage, the affordability of that coverage, and which employees were offered what. The IRS looks for indicators that might suggest non-compliance, such as:

  • Offer codes indicating no coverage was offered to full-time employees
  • Safe harbor codes that don't match reported employee contributions
  • Missing or incomplete employee information
  • Forms that were filed late or not at all

Step 2: Marketplace Premium Tax Credit Data

The IRS receives data from the Health Insurance Marketplace (Healthcare.gov and state exchanges) about individuals who received premium tax credits (PTCs) to help pay for their coverage. This data includes the employer information these individuals provided when applying for Marketplace coverage.

Step 3: Data Matching

The IRS matches the Marketplace data against your filed 1095-C forms. If an employee who received a PTC appears on your ACA filings as a full-time employee who was not offered affordable, minimum value coverage, this mismatch triggers a potential penalty. The Letter 226-J is generated when this matching process identifies one or more employees who received PTCs and your filed forms suggest coverage wasn't properly offered.

Step 4: Penalty Calculation

Based on the matching results, the IRS calculates the proposed penalty. The penalty amount depends on whether Section 4980H(a) or 4980H(b) applies:

  • Section 4980H(a): Applies when you failed to offer minimum essential coverage to at least 95% of full-time employees and at least one employee received a PTC. Calculated as (total FT employees - 30) x annual penalty amount.
  • Section 4980H(b): Applies when you offered coverage to 95%+ of employees but specific employees received PTCs because coverage wasn't offered to them, wasn't affordable, or didn't provide minimum value. Calculated per affected employee.

Timeline: When to Expect Letter 226-J

Understanding the typical timeline for Letter 226-J helps employers prepare and maintain proper records:

Tax Year ACA Forms Due Letter 226-J Typically Issued Response Window
2024 March 31, 2025 Fall 2026 - Spring 2027 30 days from letter date
2025 March 31, 2026 Fall 2027 - Spring 2028 30 days from letter date
2026 March 31, 2027 Fall 2028 - Spring 2029 30 days from letter date

The IRS typically issues Letter 226-J notices 12 to 24 months after the relevant ACA filing deadline. This delay exists because the IRS needs time to receive and process all the ACA forms, obtain Marketplace data, conduct the matching process, and calculate penalties. However, the IRS has shown variation in this timeline, sometimes issuing letters earlier or later than expected. Employers should maintain complete ACA records for at least seven years to ensure they can respond to any Letter 226-J they receive.

Components of Letter 226-J Explained

The Cover Letter

The main Letter 226-J document provides an overview of the proposed penalty assessment. Key information includes:

  • Tax year: The year for which penalties are being proposed
  • Total proposed ESRP amount: The aggregate penalty the IRS believes you owe
  • Response deadline: The date by which you must respond (typically 30 days from the letter date)
  • Contact information: The IRS unit handling your case and their contact details
  • Response options: Instructions for agreeing, disagreeing, or partially agreeing with the assessment

The cover letter also explains the penalties under IRC Section 4980H and provides general information about why you may have been assessed penalties. Pay close attention to the response deadline, as missing this date can result in automatic assessment of the full proposed penalty.

Form 14764: ESRP Response

Form 14764 is the response form you must complete and return to the IRS. This form allows you to indicate whether you:

  • Agree with the entire assessment: You accept the proposed penalty and will pay
  • Disagree with the entire assessment: You dispute all proposed penalties
  • Partially agree: You accept some penalties but dispute others
  • Need more time: You request an extension to gather documentation

When completing Form 14764 for Letter 226-J, be specific about your response. If you're disputing penalties, clearly indicate which employees and which months you're disputing. Attach supporting documentation such as enrollment records, offer letters, payroll data showing employee hours, and any corrected 1095-C forms you've filed.

Form 14765: Employee PTC Listing

Form 14765 accompanies Letter 226-J and lists each employee whose receipt of premium tax credits contributed to the proposed penalty. For each employee, the form shows:

  • Employee name and Social Security Number: Identifying information
  • Months with PTC: The specific months the employee received premium tax credits
  • Proposed penalty per employee: The amount attributed to each individual

This listing is crucial for your response. Review each employee carefully to identify:

  • Employees who weren't actually full-time (shouldn't have triggered penalties)
  • Employees who were offered coverage but declined it
  • Employees in valid waiting periods or limited non-assessment periods
  • Employees whose 1095-C was filed incorrectly and needs correction

Form 14765-A: Detailed Penalty Calculations

For more complex cases, Letter 226-J may include Form 14765-A, which provides month-by-month penalty calculations. This form is particularly useful for understanding:

  • Which months have the highest penalty exposure
  • How the 4980H(a) vs. 4980H(b) determination was made for each month
  • The specific calculation methodology the IRS used

Use Form 14765-A to focus your response efforts on the months and calculations where you have the strongest case for disputing penalties.

Common Reasons for Receiving Letter 226-J

Legitimate Penalty Triggers

Some employers receive Letter 226-J because they genuinely failed to comply with ACA requirements. Common legitimate triggers include:

1. Failure to Offer Coverage to 95% of Full-Time Employees

If your organization didn't offer minimum essential coverage to at least 95% of your full-time employees (those working 30+ hours per week on average), you may legitimately owe 4980H(a) penalties. This often happens when employers misclassify employees or don't have proper systems to track hours.

2. Unaffordable Coverage

Even if you offered coverage, if the employee contribution exceeded the affordability threshold (9.02% of household income for 2025), employees could legitimately obtain PTCs and trigger 4980H(b) penalties. Many employers don't realize how strict the affordability requirements are, particularly for lower-wage workers.

3. Coverage That Didn't Provide Minimum Value

Plans must pay at least 60% of expected health care costs to provide minimum value. If your plan design was too lean, employees could legitimately obtain PTCs even though you offered coverage.

4. Failure to Offer Dependent Coverage

Coverage must extend to dependent children up to age 26. Employers who only offered employee-only coverage failed to meet the full offer requirement, potentially triggering penalties.

Erroneous Penalty Assessments

Many Letter 226-J notices contain errors or are based on incorrect information. Common situations where assessments may be wrong include:

1. Incorrect Employee Classifications

  • Part-time employees incorrectly identified as full-time
  • Seasonal employees counted when they shouldn't be
  • Employees in valid measurement periods before being determined full-time

2. Form 1095-C Coding Errors

  • Wrong codes entered on Lines 14, 15, or 16
  • Safe harbor codes not used when they should have been
  • Affordability information entered incorrectly

3. Marketplace Data Errors

  • Employees received PTCs incorrectly (they were actually offered affordable coverage)
  • Employees listed wrong employer information when applying for Marketplace coverage
  • PTCs were later recaptured but IRS data wasn't updated

4. Limited Non-Assessment Period Issues

  • New employees in permissible waiting periods
  • Variable hour employees in initial measurement periods
  • Employees with breaks in service or status changes

How to Respond to Letter 226-J

Step 1: Act Immediately

When you receive Letter 226-J, time is critical. Your response is due within 30 days of the letter date, not the date you receive it. If you receive the letter late (perhaps due to address issues), you may already have limited time remaining. Contact the IRS immediately if you need an extension.

Critical first steps:

  • Note the deadline: Mark it on your calendar and set reminders
  • Gather your team: Involve HR, benefits, payroll, and tax professionals
  • Locate your records: Find all ACA-related documentation for the tax year in question
  • Review the employee list: Begin analyzing Form 14765 immediately

Step 2: Analyze Each Listed Employee

Go through Form 14765 employee by employee. For each person listed, determine:

  • Employment status: Were they actually a full-time employee during the months in question?
  • Coverage offer: Were they offered minimum essential coverage that extended to dependents?
  • Affordability: Was the coverage affordable under one of the safe harbors?
  • Response: Did they enroll, decline, or fail to respond to the coverage offer?
  • 1095-C accuracy: Was their Form 1095-C filed correctly?

Create a spreadsheet to track your analysis of each employee. This will help you identify patterns and prepare your response documentation.

Step 3: Gather Supporting Documentation

For each employee you plan to dispute, gather documentation that supports your position:

  • Enrollment records: Proof that coverage was offered and the employee's response
  • Offer letters or open enrollment materials: Documentation showing what was offered
  • Payroll records: Evidence of hours worked (to prove part-time status or measurement period applicability)
  • Plan documents: Summary plan descriptions showing minimum value and contribution amounts
  • Filed and corrected 1095-C forms: Copies of what you reported to the IRS

Step 4: File Corrected Forms If Needed

If your analysis reveals that your original Forms 1095-C contained errors, file corrected forms immediately. Common corrections include:

  • Updating Line 14 codes to accurately reflect coverage offers
  • Adding safe harbor codes to Line 16 that should have been included
  • Correcting employee Social Security Numbers that were entered incorrectly
  • Fixing contribution amounts on Line 15

Filing corrected forms before or alongside your Letter 226-J response strengthens your position by showing the IRS what the accurate information should have been.

Step 5: Complete and Submit Form 14764

Based on your analysis, complete Form 14764 to indicate your response:

If You Agree Fully:

  • Check the box indicating agreement
  • Sign and date the form
  • Return by the deadline
  • Await payment instructions from the IRS

If You Disagree Fully or Partially:

  • Check the appropriate box
  • Attach a detailed explanation for each disputed employee
  • Include all supporting documentation
  • Reference specific employees and months you're disputing
  • If you filed corrected forms, include copies and explain the corrections

If You Need More Time:

  • Contact the IRS number on the letter before the deadline
  • Request an extension in writing
  • Explain why additional time is needed
  • The IRS generally grants reasonable extension requests

Step 6: Send Your Response Properly

Send your Letter 226-J response via certified mail or another trackable method. Keep copies of:

  • Your completed Form 14764
  • All attachments and supporting documentation
  • The mailing receipt and tracking information

Do not fax or email your response unless specifically instructed by the IRS. The response address is provided in the letter.

What Happens After You Respond to Letter 226-J

IRS Review of Your Response

After receiving your Letter 226-J response, the IRS will review your documentation and make a determination. This process can take several months. During this time:

  • The IRS may contact you for additional information or clarification
  • They may request additional documentation
  • They will review any corrected forms you filed
  • They will verify information against their records

Possible Outcomes

Following the IRS review, you'll receive one of several possible letters:

Letter 227-J (Penalty Reduced or Eliminated):

If the IRS agrees with some or all of your dispute, you'll receive Letter 227-J showing the revised (or eliminated) penalty amount. This is the best outcome for disputed assessments.

Letter 227-K (Penalty Confirmed):

If the IRS rejects your dispute and confirms the original penalty, you'll receive Letter 227-K. This letter makes the assessment final unless you request a conference or appeal.

Letter 227-L (Conference Scheduled):

In some cases, the IRS may schedule a conference to discuss the disputed items. This is an opportunity to present your case verbally.

Letter 227-M (No Response Received):

If you don't respond to Letter 226-J by the deadline, you'll receive Letter 227-M confirming the full penalty assessment. At this point, your options are extremely limited.

Appeal Rights

If the IRS confirms penalties after your dispute, you generally have the right to:

  • Request a conference: Meet with the IRS to discuss the assessment
  • Appeal to IRS Appeals: Request an independent review by the IRS Office of Appeals
  • Pay and claim refund: Pay the penalty and file a claim for refund, then potentially sue in court

These appeal rights have their own deadlines and procedures, so act promptly if you receive an unfavorable determination.

Preventing Future Letter 226-J Notices

Accurate ACA Reporting

The best way to avoid Letter 226-J is accurate ACA reporting in the first place. Key practices include:

  • Use quality ACA software: Professional ACA reporting software validates data against IRS rules before filing
  • Verify employee information: Double-check Social Security Numbers, names, and addresses
  • Apply correct codes: Understand and use appropriate Line 14, 15, and 16 codes
  • Document safe harbors: If using affordability safe harbors, record which method applies to each employee
  • File on time: Meet ACA filing deadlines to avoid information return penalties that can compound issues

Proper Coverage Offers

Ensure your health coverage program meets ACA requirements:

  • Offer to 95% of full-time employees: Track all employees working 30+ hours/week and ensure coverage offers
  • Include dependents: Coverage must extend to dependent children up to age 26
  • Ensure affordability: Keep employee contributions below the threshold (approximately $113.64/month for the FPL safe harbor in 2025)
  • Provide minimum value: Plans must pay at least 60% of expected health costs

Documentation Best Practices

Maintain comprehensive records to support your compliance:

  • Keep enrollment records: Document every coverage offer and employee response
  • Save communication: Retain open enrollment materials and reminder notices
  • Track hours: Maintain accurate records of hours worked for all employees
  • Archive forms: Keep copies of all filed ACA forms for at least seven years

Letter 226-J Penalty Amounts and Calculations

Current Penalty Amounts

When you receive Letter 226-J, the proposed penalties will be based on the indexed amounts for the applicable tax year:

Tax Year 4980H(a) Penalty 4980H(b) Penalty Monthly 4980H(a) Monthly 4980H(b)
2024 $2,880/employee $4,320/employee $240/employee $360/employee
2025 $2,970/employee $4,460/employee $247.50/employee $371.67/employee
2026 (Projected) ~$3,060/employee ~$4,590/employee ~$255/employee ~$382.50/employee

Understanding the Calculation on Your Letter

The proposed penalty on your Letter 226-J is calculated based on whether 4980H(a) or 4980H(b) applies:

4980H(a) Calculation Example:

If you have 200 full-time employees and failed to offer MEC to 95% of them in any month where an employee received a PTC:

  • Monthly penalty: (200 - 30) x $247.50 = $42,075 per month (2025)
  • Annual penalty: $42,075 x 12 = $504,900 (if non-compliant all year)

4980H(b) Calculation Example:

If you offered coverage to all employees but 15 received PTCs due to affordability issues:

  • Annual penalty: 15 x $4,460 = $66,900 (2025)
  • If applicable for fewer months, the penalty is prorated

Frequently Asked Questions About Letter 226-J

What is Letter 226-J from the IRS?

Letter 226-J is the official IRS notice used to propose Employer Shared Responsibility Payment (ESRP) penalties against Applicable Large Employers under the Affordable Care Act. When the IRS data-matching process indicates that an employer may have failed to offer adequate health coverage to full-time employees (resulting in those employees receiving premium tax credits for Marketplace coverage), Letter 226-J communicates the proposed penalty amount and provides an opportunity to respond before the assessment becomes final.

How long do I have to respond to Letter 226-J?

You have 30 days from the date on Letter 226-J to respond. This deadline is calculated from the letter date, not when you receive it. If you need more time, contact the IRS phone number listed on the letter before the deadline to request an extension. The IRS generally grants reasonable extension requests, but you must ask before the original deadline expires. Missing the deadline can result in automatic assessment of the full proposed penalty.

Can I dispute the penalties in Letter 226-J?

Yes, you can dispute Letter 226-J penalties by responding with Form 14764 and supporting documentation. Common grounds for dispute include: employees were incorrectly classified as full-time, coverage was offered but not properly reported, safe harbor codes should have been applied, employees were in valid waiting periods, or Marketplace data is incorrect. Provide detailed explanations and documentation for each employee you're disputing, and file corrected Forms 1095-C if your original filings contained errors.

What is Form 14765 in the Letter 226-J package?

Form 14765 is the Employee Premium Tax Credit (PTC) Listing that accompanies Letter 226-J. It lists each full-time employee whose receipt of premium tax credits contributed to the proposed penalty. For each employee, the form shows their name, Social Security Number, months they received PTCs, and the penalty amount attributed to them. Review this form carefully to identify employees who may have been listed in error or whose 1095-C was filed incorrectly.

What happens if I don't respond to Letter 226-J?

If you don't respond to Letter 226-J within 30 days, the IRS will issue Letter 227-M confirming the full proposed penalty assessment. At that point, the penalty becomes final, and your options for disputing it are severely limited. You may still have some appeal rights, but they're much more restricted than if you had responded timely. The IRS will proceed with collection actions, which can include notices of balance due, levies, and liens.

How do I know which penalty applies: 4980H(a) or 4980H(b)?

The type of penalty shown on Letter 226-J depends on your coverage offer. Section 4980H(a) applies if you failed to offer minimum essential coverage to at least 95% of full-time employees in any month. Section 4980H(b) applies if you offered coverage to 95%+ but specific employees received PTCs because coverage wasn't offered to them, wasn't affordable, or didn't provide minimum value. Your letter and Form 14765-A (if included) will indicate which penalty type applies.

Should I file corrected 1095-C forms before responding to Letter 226-J?

Yes, if your original Forms 1095-C contained errors, you should file corrected forms promptly. Corrections should be filed as soon as you discover errors, ideally before or concurrent with your Letter 226-J response. Include copies of corrected forms with your response and explain what was changed and why. Filing corrections shows the IRS what the accurate information should have been and strengthens your dispute position.

Can I get professional help responding to Letter 226-J?

Yes, many employers work with tax professionals, employee benefits attorneys, or their benefits advisors when responding to Letter 226-J. Given the complexity of ACA rules and the potential penalty amounts involved, professional assistance is often worthwhile. A professional can help analyze the employee listings, identify valid dispute grounds, gather appropriate documentation, and prepare a comprehensive response. Some ACA software providers also offer support services.

What if an employee received a PTC but I did offer them coverage?

This is a common Letter 226-J dispute scenario. If you offered affordable, minimum value coverage to an employee but they still received a PTC, the Marketplace may have incorrectly determined their eligibility. To dispute, gather documentation showing: the coverage offer was made, the employee's required contribution (proving affordability), and the plan's minimum value. File a corrected 1095-C if the original didn't properly reflect the offer, and explain the situation in your response.

How often does the IRS send Letter 226-J?

The IRS sends Letter 226-J notices once per tax year, typically 12-24 months after the ACA filing deadline for that year. For example, for tax year 2025 (forms due March 31, 2026), you might receive Letter 226-J in late 2027 or early 2028. However, if you receive an unfavorable determination and the IRS later discovers additional issues, you could receive additional correspondence. The IRS has a three-year statute of limitations for assessment from the filing date.

What documentation should I keep to defend against Letter 226-J?

To be prepared for a potential Letter 226-J, maintain comprehensive records including: enrollment forms and coverage election documentation, open enrollment materials and offer communications, payroll records showing hours worked, plan documents and summary plan descriptions, copies of all filed 1094-C and 1095-C forms, and records of safe harbor calculations. Keep these records for at least seven years after the applicable tax year to ensure availability for any IRS inquiry.

Can the proposed penalty amount change after I respond?

Yes, after you respond to Letter 226-J, the IRS reviews your documentation and may adjust the proposed penalty. The penalty could be reduced to zero (if you successfully dispute all employees), reduced partially (if some disputes are accepted), confirmed (if the IRS rejects your disputes), or in rare cases, increased if additional issues are discovered. You'll receive a follow-up letter (227-J, 227-K, or similar) indicating the IRS's determination.

How BoomTax Helps You Avoid and Respond to Letter 226-J

Understanding what is Letter 226-J is essential, but even better is having the systems in place to avoid receiving one entirely. BoomTax provides comprehensive ACA compliance solutions designed to help Applicable Large Employers meet their obligations and minimize the risk of penalty assessments:

  • Accurate ACA reporting: File Forms 1095-C and 1094-C with comprehensive data validation that catches errors before they can trigger Letter 226-J notices
  • Intelligent code guidance: Assistance selecting the correct Line 14, 15, and 16 codes ensures your forms accurately reflect your coverage offers
  • Safe harbor documentation: Track which affordability safe harbor applies to each employee for defensible reporting
  • Bulk data import: Import employee data from payroll systems like ADP, Workday, and UKG to minimize manual entry errors
  • Unlimited corrections: If you need to file corrected forms in response to Letter 226-J, do so at no additional cost
  • Multi-year archives: Access your historical ACA filings to quickly gather documentation when responding to penalty notices
  • State filing support: Handle California, New Jersey, Rhode Island, D.C., and Massachusetts state filings from the same platform

When accurate ACA reporting is filed through BoomTax, the IRS data-matching process is more likely to confirm compliance rather than identify discrepancies. Proper coding and documentation create a defensible record that can quickly refute erroneous Letter 226-J assessments if they occur.

For employers who prefer comprehensive support, BoomTax also offers ACA reporting services where our team handles the entire filing process. Either way, you gain the peace of mind that comes from knowing your ACA compliance is handled correctly.

Ready to protect your organization from ACA penalties? Get started with BoomTax today and file your ACA forms with confidence.

Conclusion: Being Prepared for Letter 226-J

Understanding what is Letter 226-J is essential knowledge for every Applicable Large Employer. This IRS notice represents the enforcement mechanism for the ACA employer mandate, and receiving one triggers a time-sensitive process with significant financial implications. For tax year 2025, potential penalties reach $2,970 per employee under Section 4980H(a) and $4,460 per employee receiving premium tax credits under Section 4980H(b), making proper compliance and response procedures critically important.

Key takeaways about Letter 226-J:

  • Act immediately: You have only 30 days from the letter date to respond
  • Review every employee: Analyze Form 14765 carefully to identify dispute opportunities
  • Gather documentation: Enrollment records, payroll data, and plan documents support your response
  • File corrections if needed: Corrected 1095-C forms can demonstrate accurate information
  • Respond in writing: Use Form 14764 and send via certified mail
  • Prevent future notices: Accurate ACA reporting with proper coding minimizes risk

The best strategy is prevention through accurate ACA compliance and reporting. Using reliable ACA reporting software like BoomTax ensures your Forms 1095-C are filed correctly with appropriate codes, reducing the likelihood of receiving Letter 226-J in the first place. When you do maintain proper records and file accurate forms, you're also prepared to quickly respond to any notices that do arrive.

References and Additional Resources

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