Pay or Play Enforcement: What You Need to Know

In late 2018, the IRS began issuing enforcement letters to employers with generally 50 or more full-time or full-time equivalent employees regarding their compliance with the employer shared responsibility rules under the Affordable Care Act (ACA) for the 2016 calendar year. These letters, known as Letter 226-J, inform employers of their potential liability for an employer shared responsibility penalty, if any, for 2016.

Who Will Receive These Letters
These letters are only sent to employers subject to the employer shared responsibility rules, known as applicable large employers (ALEs). ALEs generally have 50 or more full-time or full-time equivalent employees. The determination of whether an ALE may be liable for a penalty, and the amount of the proposed penalty in Letter 226-J, 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.

Next Steps for Those Who Receive a Letter
ALEs must respond to Letter 226-J—either agreeing with the proposed employer shared responsibility penalty or disagreeing with part or all of the proposed amount—before any employer shared responsibility liability is assessed and notice and demand for payment is made. The response is due by the response date shown on Letter 226-J, which is generally 30 days from the date of the letter.

Letter 226-J provides instructions for how the ALE should respond in writing, as well as the name and contact information of a specific IRS employee that the ALE should contact if the ALE has questions about the letter.