Managed Benefits · Compliance
A 226-J letter is the IRS proposing an Affordable Care Act employer shared responsibility payment. It is not a bill, the amount is frequently wrong because of reporting errors, and you have a defined window to respond. Here is the process, step by step, straight from the playbook the IRS publishes.
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The Process, Decoded
| Document | What it is | What you do |
|---|---|---|
| Letter 226-J | The initial proposed employer shared responsibility payment | Read it and the attachments fully; note the response date |
| ESRP summary table | The proposed amount, itemized month by month | Check each month against your records and offer data |
| Form 14765, PTC Listing | The employees whose premium tax credits triggered the proposal | Verify each line and the 1095-C codes reported for them |
| Form 14764, ESRP Response | Your formal answer: agree or disagree | Complete and return it by the response date, with your explanation |
| Response deadline | Generally 30 days from the date on the letter | Meet it, or contact the IRS person named to request more time |
| Letter 227 series | The IRS acknowledgment of your response | Read which version you got; it states what happens next |
| Appeals conference | A pre-assessment review by the IRS Office of Appeals | Request it in writing by the Letter 227 response date if you still disagree |
| Notice CP 220J | The actual assessment and demand for payment | This is the bill stage; payment and installment options apply here |
Sources: IRS, Understanding your Letter 226-J · IRS, employer shared responsibility Q&A
Understand It, Then Answer It
Per the IRS explanation of Letter 226-J, the proposed amount is computed from two sources: the Forms 1094-C and 1095-C your company filed, and the individual tax returns of your employees. When at least one full-time employee received a premium tax credit for a month where your filings did not show qualifying coverage or a safe harbor, the system proposes a payment. That is the crucial point: the letter reflects what was reported, not necessarily what happened. A wrong code on one line of a 1095-C can generate a five-figure proposal all by itself.
The summary table in your letter tags each month as a section 4980H(a) or 4980H(b) liability. The (a) penalty applies when an applicable large employer did not offer coverage to enough of its full-time workforce; the (b) penalty applies when coverage was offered but was unaffordable or fell short for specific employees who then received credits. The base amounts are $2,000 and $3,000 per the statute, adjusted upward each year; for calendar year 2023 the IRS lists the adjusted amounts as $2,880 and $4,320 per full-time employee. Which letter of the statute you are tagged under changes both the math and the rebuttal.
Disagreeing is normal and the process expects it. You complete Form 14764 indicating disagreement, attach a full explanation, and mark the corrections employee by employee on Form 14765, the premium tax credit listing. This is where offer-of-coverage codes, affordability safe harbors, and waiting-period rules get re-argued with evidence: enrollment records, plan documents, payroll data. The IRS instructs employers to follow the letter itself for how corrected information should be submitted for consideration, so work from its instructions rather than from generic advice. And if the response date is close, use the IRS contact named in your letter to ask for more time rather than sending something half-built.
The IRS answers with one of five versions of Letter 227: some close the case, others revise the amount or ask for more. If you still disagree, you can request a pre-assessment conference with the IRS Office of Appeals by the date on that letter. Only after that, or after silence, does assessment and Notice CP 220J arrive. The longer game is making sure there is no next letter: 226-J proposals overwhelmingly trace back to eligibility tracking and filing errors, which is an administration problem. The workload split behind that problem is laid out in benefits administration software vs services.
Where You Might Be
Sign Form 14764 indicating agreement and arrange payment per the instructions. Then fix the tracking gap that caused it, because the same gap generates the same letter for the next filing year.
This is the most common case. Build the correction line by line on Form 14765 with evidence behind each change, explain it fully, and respond on time. Wrong codes are fixable; missed deadlines are not.
Call the IRS contact named in your letter today and request additional time, which the IRS explicitly invites. Then get your payroll, enrollment, and filing data into one place before the new date.
Where BEG Fits
BEG Managed Benefits, powered by isolved, exists so this page becomes irrelevant to you: ACA eligibility tracked across your workforce including variable-hour employees, Forms 1094-C and 1095-C produced from clean enrollment data, and deadlines watched by a team instead of a spreadsheet. You keep your broker; the compliance administration moves off your desk. See what that covers on the Managed Benefits overview, then get your monthly estimate on screen in about 90 seconds.
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Questions
No. The IRS states that Letter 226-J is the initial proposal of an employer shared responsibility payment, not a bill. Nothing is assessed until after you respond or the response window passes.
Respond by the response date shown on the letter, which the IRS says is generally 30 days from the date of the letter. The letter itself controls; check yours first.
Yes. The IRS instructs employers to contact the person named in the letter, using the contact information it provides, if they have questions or need additional time to respond.
Form 14764, the ESRP Response, states whether you agree or disagree. If you disagree, you explain why and mark corrections on Form 14765, the Employee Premium Tax Credit Listing.
The IRS assesses the proposed amount and issues Notice CP 220J, a notice and demand for payment. Silence converts a proposal you could have contested into a liability you owe.
Yes. After the IRS acknowledges your response with a Letter 227, you can request a pre-assessment conference with the IRS Office of Appeals by the date shown, generally 30 days.
The IRS computes proposed payments from Forms 1094-C and 1095-C and employee tax returns, so letters routinely arrive well after the filing year they cover. The first wave for 2015 went out in 2017 and 2018.
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