As many of you know, the IRS has started sending out Letter 226-J notices. Many employers are now trying to figure out what triggered the IRS to send the notice. Many of them are also trying to figure out if there was anything they could have done differently to avoid receipt of Letter 226-J.
Here are a few commonly asked questions and preventive measures that employers should consider:
Question: What may trigger the IRS to send a 226J letter?
Answer: If the IRS finds that an ALE did not comply with the requirements of the ACA by:
- NOT providing 1095-C forms to employees
- NOT filing with the IRS
- NOT filing accurate information on the 1095-C/1094-C
- NOT offering affordable health coverage or coverage that meets minimum value (MV) requirements
OR, one or more employees went to an exchange and obtained a premium tax credit for a month in which they were eligible for an employer-sponsored plan and the employer did not, or was not afforded the opportunity to, respond to an exchange notice.
Question: Our company has fully-complied with the ACA requirements, is there anything else we can do to avoid receiving a 226-J letter?
Answer: Yes, employers can take pro-active steps to help avoid receiving this letter by reviewing their 1094-C & 1095-C forms for potential mistakes/errors.
Here are some things you should look for when reviewing your forms for accuracy:
- Ensure that the authoritative transmittal box is checked (Line 19) for each EIN for which you are reporting
- Ensure that an authoritative 1094-C was actually sent to the IRS either electronically or in paper form
- Ensure that the “Section 4980H Transition Relief” box is checked on Line 22, if applicable *this only applies to 2015/2016 filing years
- Ensure that the “Minimum Essential Coverage Offer Indicator” (Part III, Column a) is accurately checked for all 12 months or appropriate months (Generally, if you offer an MEC plan, this should be marked “Yes” for All 12 Months – Individual months are then left blank)
o “Yes” should be checked for all months that coverage was offered to at least 70% of eligible employees for 2015 and at least 95% of eligible employees for 2016 and later.
o “Yes” should also be checked for all applicable months of non-calendar year transition relief for 2015 and 2016.
- Ensure that the monthly full-time employee counts are correct (Part III, Column b). *Unless you have selected the 98% Offer Method
- Ensure that the correct Transition Relief Indicator Code is populated on Part III, Column e. *This only applies to 2015/2016 filing years
o Employers with 50-99 FTEs: Code A should be populated if coverage was not offered to at least 70% of FTEs
o Employers with 100+ FTEs: Code B should be populated if coverage was not offered to at least 70% of FTEs
- Ensure that there are NO forms with 1H on line 14 and blanks on lines 15/16 Look for inaccurate code combinations (For example: line 14/15/16 code combination of 1H/blank/2F. This is inaccurate and not possible because an employer can’t use a safe harbor for a month in which no coverage was offered)
- Ensure that there are no “blanks” on line 14 unless the All 12 Months is checked
- Ensure the correct affordability safe harbor code is populated when applicable
Question: Our company did not find any errors on our 1094/5-C forms. Are we in the clear?
Answer: No, not just yet. There are a few additional steps that employers can take to help protect themselves in the event of receiving a 226J Letter from the IRS.
√ Waiver Forms
Require employees to complete a waiver form acknowledging they have chosen to decline your offer of medical coverage and retain those records. This will provide your company with documented proof that qualified coverage was offered to the appropriate employees.
√ Respond to Exchange Notices ASAP
If your company receives a notice from an Exchange that an employee tried to obtain a tax credit; it is important that you respond timely. Many times it is an employee who was not eligible for medical coverage. So an immediate response can mitigate the trigger resulting in a 226J Letter.
√ Download the Retention Package
It is important that all Integrity Data clients download the retention package. This package includes your complete filing with the IRS. The documentation in this package can be used if you need to provide supporting documentation to the IRS.
Questions / Resources
If you have questions or comments please email Support@integrity-data.com.
If you would like to search for information and resources for Integrity Data products check out the following sites:
- Knowledge Base: https://www.integrity-data.com/hrp/knowledge-base/
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Last Review: 6/8/2022 – Revision: 1.0
Applies To: ACA Compliance Solution
Categories: Year End – 1095-C and Filing, Year End – Prerequisites 1094-C
Key Words: 226-J