Letter 226J: Employer Shared Responsibility Payment (ESRP)

The Letter 226J is issued by the IRS to notify employers that they may owe an Employer Shared Responsibility Payment (ESRP) under the Affordable Care Act (ACA). This letter is typically sent to large employers who failed to offer health coverage that meets the ACA’s minimum essential coverage requirements or who offered coverage that was not affordable.

Key aspects of Letter 226J:

• Explanation of ESRP: The letter will outline the reasons why the IRS has determined that the employer owes an ESRP. This could be due to failing to offer coverage to full-time employees or offering coverage that does not meet minimum value or affordability standards.
• Assessment of Payment: The letter will include a proposed ESRP amount based on the employer’s failure to meet ACA requirements. The ESRP is calculated based on the number of full-time employees and whether any of them received premium tax credits through the health insurance marketplace.
• Response Options: Employers can either agree with the ESRP and pay the proposed amount or dispute the IRS’s determination. The letter will provide instructions on how to respond and what documentation is needed to contest the assessment.
• Payment Deadline: Employers must respond by the deadline specified in the letter to avoid additional penalties or interest on the ESRP. The letter will also outline payment options, including the possibility of setting up an installment agreement if needed.

Letter 226J is crucial for employers to address promptly, as ignoring it can result in significant penalties under the Affordable Care Act.