ACA Employer Penalties: IRS Letter 226J

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Under the Affordable Care Act, “employer shared responsibility provisions” became part of the Internal Revenue Code in 2015. These directives encourage “applicable large employers” (ALEs) – generally those with 50 or more full-time equivalent employees – to offer their employees “affordable” health insurance that provides “minimum value.” Read more here to determine if your health insurance plan meets the ACA criteria.

The government monitors health care offerings through employee income tax returns and forms 1094-C and 1095-C, which the ACA requires companies to submit annually. Learn more about the ACA reporting requirements and penalties here.

Blog Post: ACA and Self-Funded Insurance

If, after evaluating the submitted forms, the IRS believes the ALE has not made adequate health insurance available to its employees, it may issue a “Letter 226-J” notifying the company of its potential liability for an employer shared responsibility payment (ESRP). The letter can be intimidating and worrisome for employers. It outlines the cumbersome steps recipients must take, regardless of whether they agree with the government’s ESRP computations.

The IRS has posted some helpful information here regarding what to do if you receive a Letter 226-J. But, if you’re like most business owners, you don’t have the time or expertise to jump through federal hoops related to health insurance benefits. The International Foundation of Employee Benefit Plans reports that more than 62 percent of companies it surveyed cited reporting, disclosure and other administrative issues as their biggest ACA challenge. CFO Research and Prudential Financial Inc. found that 46 percent of employers surveyed are responding by outsourcing or looking to outsource ACA reporting and other regulatory requirements.

To eliminate the possibility of a Letter 226-J and costly ACA non-compliance penalties, consider connecting with a professional employer organization (PEO). PEOs like Axcet HR Solutions unburden business owners from the headaches, paperwork and complexities associated with HR compliance and insulate you from fines like the ESRP.

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Sherri Bennett

Written by Sherri Bennett