Some employers have received letters from the IRS suggesting that they owe an Employer Shared Responsibility Penalty for one or more employees. The IRS website provides guidance to help employers understand Letter 226-J.
Letter 226-J is the first letter sent to an employer notifying the employer that they may be subject to an Employer Shared Responsibility Payment (ESRP). To compute the penalty amount set forth in the letter, the IRS reviews information from Forms 1094/1095-C filed by the employer and individual income tax returns filed by the employees.
Letter 226-J should be assessed immediately. The IRS provides the following action items:
- Read the letter and attachments carefully. These documents explain the ESRP process and how the information received affects the computation.
- The letter fully explains the steps to take if you agree or disagree with the proposed ESRP computation.
- Complete the response form indicating agreement or disagreement with the letter.
- If you disagree with the proposed ESRP liability, provide a full explanation of your disagreement and/or indicate changes needed on the PTC Listing. Return all documents as instructed in the letter by the response date.
- If you agree with the proposed ESRP liability, follow the instructions to sign the response form and return with full payment.
To review the penalty assessment, the IRS suggests looking at the information reported on Forms 1094-C and 1095-C. Let the IRS know if any of the reported information was incorrect and should be changed. The IRS will also allow additional time to respond if the request is made within the response date timeframe. Following the instructions in the letter and providing corrected information to the IRS for consideration will help the IRS with the determination.
A link to the IRS page addressing Letter 226-J may be accessed by clicking here.
