The Affordable Care Act (ACA) requires applicable large employers (ALEs) to offer affordable, minimum-value health coverage to their full-time employees (and dependents) or potentially pay a penalty to the IRS. These penalties are commonly referred to as “pay-or-play” penalties.
The IRS issues Letter 226-J to an ALE if it determines that, for at least one month in the year, one or more of the ALE’s full-time employees enrolled in health coverage through an ACA Exchange and received a premium tax credit. The IRS’ determinations of whether an ALE may be liable for a penalty and the amount of the proposed penalty are based on information from Forms 1094-C and 1095-C filed by the ALE and the individual income tax returns filed by the ALE’s employees.
Letter 226-J is only an initial notification that an ALE may be liable for a pay-or-play penalty and not a tax bill; however, ALEs that receive these letters should take them seriously and start preparing a response to help minimize their penalty exposure.
The checklist below outlines the four key steps ALEs should take to respond to a pay-or-play penalty assessment (Letter 226-J):
- Step 1: Understanding Letter 226-J
- Step 2: Developing a Response Strategy
- Step 3: Agreeing or Disagreeing With Proposed Penalty Amount
- Step 4: Understanding the IRS’ Response (Letter 227)
This checklist is merely a guideline. It is neither meant to be exhaustive nor meant to be construed as legal advice. It does not address all potential compliance issues with federal, state or local standards. Consult your licensed representative at Parrott Benefit Group or legal counsel to address possible compliance requirements. © 2024 Zywave, Inc. All rights reserved.
