IRS Letter 226J

The Affordable Care Act (ACA) contains requirements called the employer shared responsibility rules (often called the employer mandate). Code §4980H requires applicable large employers (ALEs – those with 50 or more full-time equivalents) to offer coverage to full-time employees and their dependent children. Employers who fail to do so face two different potential penalties. The IRS has begun to send letters to employers (Letter 226J) to begin the collection process for employers who have failed to meet the §4980H requirements for benefits offered during 2015. Penalty calculations are based on data provided by employers to the IRS on Forms 1094 and 1095. There are two different penalties that could apply to ALE, but only one would apply for any particular tax year.

We believe that many of the 226J proposed employer assessments will be applied due to mistakes made in employer reporting, rather than to an actual violation of a §4980H requirement.

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