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226J Penalty Letters are Being Sent for the 2020 Filing Year
Robyn Carlini • Nov 21, 2022
226J Penalty Letters are Being Sent for the 2020 Filing Year
The IRS is currently sending out
226J
penalty letters for the 2020 filing year. The IRS has issued billions of dollars in penalties to employers that failed to remain compliant under the ACA regulations.
ACA compliance is growing more challenging each year with the increase in codes, 87,000 new IRS agents, an additional $80 billion in funding for the agency, and the loss of the good faith effort. To avoid receiving a letter due to errors, it is best to use an experienced ACA vendor.
Important Notice: The AIR System (Applicable Large Employer Information Returns) will be shut down on December 5, 2022, so that the IRS can prepare for the 2023 Filing Season. It will reopen mid-January 2023.
Penalties for Employer Mandate (4980H) or Employer Reporting (6055 & 6056) include but not limited to are below:
• Noncompliance
• Late Filing
• Failure to file
• “Potential” noncompliance
Applicable Large Employers (ALE) will receive this letter when they have not been ACA complaint for the filing year. If an employee has received a Premium Tax Credit from a state or federal health exchange, this will trigger a penalty for the employer. The letter will contain either the “A” penalty or the “B” penalty.
The “A” penalty is subjected to an ALE if they did not offer coverage to at least 95% of their full-time employees and any of their full-time employees received a subsidy in the health exchange. An ALE is penalized for every full-time employee they employ with the “A” penalty.
An ALE can receive the “B” penalty when they have failed to offer coverage that meets Minimum Value Coverage. An ALE will pay this penalty for each employee that received a subsidy form the Market Exchange.
ALE’s subject to either of these penalties will receive a 226J Letter to inform them of their potential liability.
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We are answering your questions on the steps to take after receiving a letter:
1. What is Letter 226-J?
This is the initial letter issued to Applicable Large Employers (ALEs) to notify them that they may be liable for an Employer Shared Responsibility Payment (ESRP).
2. Is this letter a bill?
This letter is not a bill. It is the proposed ESRP (Employer Shared Responsibility Payment).
3. What do I need to do?
This step is best handled by an ACA expert or legal counsel. Review the form for errors such as: are all employees listed in the letter actually full-time or are they part-time?
Complete the response section and return by the response date and review your filing. If you used an ACA vendor, they should maintain these records. Also, if you intend to disagree with the letter, it is best to request an extension from the IRS, if possible. Explain why you need the extra time to respond and the IRS may grant a 30-day extension in some cases.
4. What happens if I do not respond to the letter?
An Applicable Large Employer has 30 days to respond to the letter. If a company does not respond within that time, the IRS will issue a Notice and Demand for payment for the proposed amount. The IRS can place a lien or levy enforcement until the penalty is paid. An IRS levy permits the legal seizure of property to satisfy a tax debt.
5. How do I avoid receiving a letter?
ACA compliance is growing more challenging each year with the increase in codes, 87,000 new IRS agents, an additional $80 billion in funding for the agency, and the loss of the good faith effort. To avoid receiving a letter due to errors, it is best to use an experienced ACA vendor.
6. What year is the IRS sending out penalties for?
The IRS is sending out Letter 226J for the 2020 tax year and previous years.
7. How to avoid receiving penalty letters for future filings?
Establishing a monthly ACA Compliance process in your company will help mitigate the chances of receiving a penalty letter. Things such as tracking employees that are eligible for benefits, making necessary offers of coverage, and updating essential data on a consistent basis are vital for monthly data compliance.
This process does take a great deal of time and requires ACA knowledge to avoid errors, so it is best to outsource to an outside ACA vendor that has a robust solution.
If you have received a penalty letter from the IRS, contact SyncStream
to learn more about how to respond and file for previous years. We have mitigated over 600 million dollars in penalties.
SyncStream has been filing since the first year of ACA reporting in 2015. Our staff are tenured, highly trained ACA subject matter experts. We remove the complexity of ACA compliance, offering the expertise, tools, and knowledge that guide businesses toward higher compliance, lower financial risk, and streamlined ACA reporting. SyncStream will give you the peace of mind that your compliance is in good hands.
| 4980H Employer Shared Responsibility Penalties | 2020 Annual Penalties | 2021 Annual Penalties | 2022 Annual Penalties |
|---|---|---|---|
| 4980H (a) Employer Shared Responsibility Penalties | $2,570 | $2,700 | $2,750 |
| 4980H (b) Employer Shared Responsibility Penalties | $3,860 | $4,060 | $4,120 |
Have Questions or Need More Information?
SyncStream Solutions, LLC is thrilled to broaden their educational webinars to reach the SHRM audience. SyncStream Solutions, LLC is recognized by SHRM to offer Professional Development Credits (PDCs) for SHRM-CP® or SHRM-SCP® recertification activities effective March 6, 2024 through March 31, 2026.
We invite you to watch our on-demand webinar session where our experienced and highly trained ACA subject matter experts will discuss common mistakes that may result in an IRS penalty letter.
Are you grappling with ACA reporting complexities and seeking expert guidance to ensure compliance before the ACA deadline? Watch our insightful session where our tenured and highly trained ACA subject matter experts will address the most pressing questions leading up to the reporting deadline. We understand the challenges businesses face in navigating the intricacies of ACA compliance, and we are here to simplify the process. T opics include: Navigating the Year-End Process with Precision Important Deadlines Exploring the E-filing Correction Process
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