Receiving an IRS ACA penalty notice, called a Letter 226-J, can be more than just a little bit frightening – it can be downright terrifying.

The IRS ACA penalty notice is one of the more complex IRS penalty notices, usually consisting of a minimum of eight to ten pages. There are multiple steps to follow depending on whether you agree, partially agree or disagree with the proposed penalty amount.

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Here are some actions you may need to take.

ACTION 1 - Verify that the information on the penalty notice is correct

Questions to consider:

    • Does the entity and tax year belong to my company?
    • What do all of the codes on the Employee Premium Tax Credit Listing mean per employee, per month?
    • Where does the actual data from this tax year reside so I can compare the information on this form to our data?

ACTION 2- I disagree with some or all the information. What do I do now?

Questions to consider:

    • Where do I start in terms of correcting the information? Keep in mind you can't correct misinformation by simply transmitting a correction file to the IRS.
    • How do I respond to the IRS with all of the corrected information?
    • What forms do I need to use?
    • What are the appropriate codes I need to use, keeping in mind that the codes may fluctuate from month-to-month for the same employee?

ACTION 3– What's next? How do you respond and/or make the payment?

Things to consider:

    • Your response is not just sending the corrected coding. You need to include detailed documentation.
    • Do you have your signed employer statement explaining why you disagree? Corrections not attributable to form codes have to be explained in detail.
    • If you agree, how do you make a payment?

Keep in mind that if the original coding was correct, and you actually didn't offer affordable Minimum Essential Coverage (MEC) during the tax year that was the subject of the notice (which is about 2-year delay), have you done what is needed to course correct so that you don't receive additional penalties for subsequent years two years later?

How do you manage risk and who in your organization can help you navigate ACA challenges and build your strategy? Do you have the internal resources and are you able to do all of the analysis and reply to the IRS penalty notice within 30 days?

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ADP is committed to assisting businesses with increased compliance requirements resulting from rapidly evolving legislation. Our goal is to help minimize your administrative burden across the entire spectrum of employment-related payroll, tax, HR and benefits, so that you can focus on running your business.

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