July 20, 2018
For the last eight months many unlucky employers have received a Letter 226-J from the IRS. The Letter 226-J is the mechanism that the IRS is using to inform employers if the IRS believes the employer owes the IRS money as a result of the Affordable Care Act's (ACA) employer mandate. Once an employer receives a Letter 226-J, it must respond to the IRS, or the employer will be forced to pay the penalty amount stated on the Letter 226-J. Therefore, the best strategy is to avoid the Letter 226-J by ensuring you submit accurate data on the Forms 1094-C and 1095-C. Accord can help.
There are three main reasons an employer could receive a Letter 226-J:
- The employer provided inaccurate data to its ACA vendor;
- The employer's ACA vendor mishandled the filing of the Forms 1094-C and/or 1095-C; or
- The employer actually owes the penalty.
The first reason an employer could be receiving a Letter 226-J, is it provided inaccurate data to the ACA vendor, which resulted in the Forms 1094-C and/or 1095-C being completed in an inaccurate manner. Providing accurate information to your ACA vendor is a critical first step to avoid the Letter 226-J
The second reason an employer could be receiving a Letter 226-J, is if its ACA vendor filled out the Forms incorrectly. For example, a common error that has led to a lot of Letters 226-J being sent to employers is if column (a) of part III of the Form 1094-C was either left blank or had the "no" box checked. If the "no" box was checked, or column (a) was left blank, and one full-time employee received a premium tax credit for that month, the employer likely received a Letter 226-J with exposure to the section 4980H(a) penalty. If your ACA vendor lacked the competency to make the correct binary "yes or no" selection in column (a) of part III of the Form 1094-C, it likely won't be pretty when the IRS gets around to the enforcement of section 4980H(b).
The final reason an employer could be receiving a Letter 226-J, is the employer did not offer its full-time employees coverage. If this is the case, the employer should not be surprised as that is the risk of not offering full-time employees coverage. Regardless of the reason, if an employer received a Letter 226-J, Accord can assist employers avoid the Letter 226-J in the future.
Since our inception Accord has used its proprietary software to audit all client data before submitting it to the IRS (including lines 14, 15, and 16 of the Form 1095-C). Our tools allow customers to know which employees, if any, could trigger a section 4980H penalty (the penalty that leads to the Letter 226-J), and create reports which list potential problem employees. Accord's software provides customers a deep understanding of the information they are submitting to the IRS. Accord's approach has been extremely successful, and, to date, not a single Accord client has received a Letter 226-J.
With the section 4980H penalties continuing to rise, it is critical employers avoid the massive penalties associated with the Letter 226-J. By reporting accurately the first time, an employer avoids the hassles and attorney fees associated with the Letter 226-J. Please contact us if you would like to know more about our product, or if we can assist you with your ACA reporting and compliance needs.
About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorneys P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.
The information contained on this site is not, nor is it intended to be, legal advice. An attorney should be consulted for advice regarding your situation. Copyright © 2018 by Accord Systems, LLC. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.