IRS Letter 226-J: How to Respond to an ACA Employer Mandate Penalty Notice

IRS Letter 226-J proposes an Employer Shared Responsibility Payment under the ACA employer mandate. Here is what the letter means, how to respond with Form 14764, and how to protect your appeal rights.

Quick Answer (as of 2026): IRS Letter 226-J is a proposed Employer Shared Responsibility Payment (ESRP) under the ACA employer mandate, not a final bill. An Applicable Large Employer must respond by the date printed on the letter using Form 14764, either agreeing to pay or disagreeing and submitting Form 14765 with corrections. Missing the deadline lets the IRS treat the proposed penalty as final.

An IRS envelope proposing a six-figure penalty is one of the more alarming pieces of mail an employer can open, and Letter 226-J is exactly that kind of letter for many businesses subject to the Affordable Care Act's employer mandate. The letter tells an Applicable Large Employer, generally a business with 50 or more full-time and full-time-equivalent employees, that the IRS believes it owes an Employer Shared Responsibility Payment under Internal Revenue Code Section 4980H. The good news buried in the bad news: Letter 226-J is a proposal, not a final assessment, and employers who respond correctly and on time often reduce or eliminate the amount the IRS originally calculated.

What Is IRS Letter 226-J?

IRS Letter 226-J is the initial notice the IRS sends to an Applicable Large Employer to propose an Employer Shared Responsibility Payment under the ACA employer mandate. The IRS calculates the proposed amount using the Forms 1094-C and 1095-C the employer already filed, cross-checked against the individual income tax returns of employees who received a premium tax credit on a health insurance marketplace plan. If that cross-check shows the employer failed to offer coverage to enough full-time employees, or offered coverage that was unaffordable or did not provide minimum value, the letter proposes a penalty under one of the two Section 4980H rules.

Why Did My Business Receive a Letter 226-J?

A business receives Letter 226-J because at least one full-time employee received a premium tax credit for marketplace coverage in a year the IRS also has that employer's Forms 1094-C and 1095-C on file showing an offer of coverage issue for that employee. The trigger is not random. The IRS matches its own data: an employee only qualifies for a premium tax credit if they were not offered affordable, minimum-value employer coverage, so a credit on that employee's return signals a possible gap on the employer's side. The letter can also result from a data entry error, such as an incorrect employee count, a wrong affordability code on Form 1095-C, or a coverage offer that was made but reported incorrectly, which is why reviewing the underlying filings before responding matters as much as understanding the penalty math.

What Are the 2027 ACA Employer Mandate Penalty Amounts a Letter 226-J Can Propose?

A Letter 226-J proposes a penalty under one of two Section 4980H provisions, and the dollar amounts rise every year. For 2027, the Section 4980H(a) penalty for failing to offer minimum essential coverage to at least 95% of full-time employees is $3,780 per full-time employee, and the Section 4980H(b) penalty for offering coverage that was unaffordable or failed to provide minimum value is $5,670 per affected employee, according to IRS Revenue Procedure 2026-22. These are the same figures covered in our <a href="/blog/aca-affordability-percentage-guide">2027 ACA affordability percentage guide</a>, since a Letter 226-J for a given year uses that year's penalty amounts and that year's affordability percentage together to calculate the proposed payment.

Summit Health Benefits reviews your Forms 1094-C and 1095-C before the IRS does. A specialist checks your affordability calculations and coverage offer codes against your actual Section 125 plan design, so a Letter 226-J is far less likely to arrive in the first place. Get a free ACA filing review.

How Do I Respond to IRS Letter 226-J?

An employer responds to Letter 226-J by completing Form 14764, the ESRP Response form, and returning it by the response date printed on the letter. On Form 14764, the employer states whether it agrees with the full proposed payment, disagrees with it entirely, or agrees with part of it. An employer that disagrees with any portion of the proposed ESRP must also complete Form 14765, the PTC Listing, which lists each full-time employee the IRS flagged and lets the employer indicate corrections, such as a different affordability code or an offer of coverage the original filing omitted, along with a written explanation and any supporting documentation. Both forms go back to the IRS together, following the exact mailing or fax instructions printed in the letter itself, not a general IRS address.

How Much Time Does an Employer Have to Respond to Letter 226-J?

The response date is printed directly on the letter itself, and employer benefits compliance advisories have widely reported that the IRS extended this window to a minimum of roughly 90 days for Letter 226-J notices issued on or after January 1, 2025, up from a much shorter window used in earlier enforcement years. An employer that needs more time can request an extension using the contact information printed on the letter, but that request should go in well before the original response date, since the IRS is not obligated to grant one. Employers should never assume a longer deadline applies without confirming the exact date printed on their own letter, since IRS.gov describes the response date as letter-specific rather than a single fixed number of days across every case.

What Happens If an Employer Does Not Respond to Letter 226-J?

An employer that does not respond by the date on the letter risks having the IRS treat the originally proposed ESRP amount as accepted, moving the case toward a final bill with no further opportunity to dispute the underlying calculation through this process. The IRS has stated plainly that Letter 226-J is not a bill, it is a proposal, which means the entire value of responding lies in the chance to correct errors or provide missing documentation before the number becomes fixed. Silence does not make the letter go away. It removes the employer's best opportunity to reduce or eliminate the proposed payment.

What Happens After an Employer Responds to Letter 226-J?

After an employer responds, the IRS reviews the Form 14764 and Form 14765 submission and sends a follow-up notice called Letter 227 acknowledging the response and stating the IRS's resulting determination. Letter 227 comes in several versions depending on the outcome: some versions confirm the ESRP has been reduced or eliminated, others confirm the IRS is sticking with its original number, and each version explains the employer's next steps, including appeal rights, in detail. If the case is not resolved through this exchange and a final liability remains, the IRS issues a formal notice and demand for payment, which is a separate, later step from Letter 226-J or Letter 227 themselves.

Does an Employer Have Appeal Rights After Letter 226-J?

Yes. The Letter 227 an employer receives after responding to Letter 226-J spells out the employer's appeal rights, including the right to request a conference with the IRS Independent Office of Appeals if the employer disagrees with the IRS's determination. An employer pursuing an appeal should keep a complete copy of the original Letter 226-J, its own Form 14764 and Form 14765 response, and every piece of supporting documentation submitted, since the appeals process reviews that full record rather than starting over from scratch.

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Can Someone Else Respond to Letter 226-J on the Employer's Behalf?

Yes, but only with the correct paperwork in place first. An employer that wants a broker, consultant, or accountant to communicate with the IRS about a Letter 226-J needs to submit Form 2848, Power of Attorney and Declaration of Representative, and that form must specifically state the tax year in question and note that it covers the Section 4980H Shared Responsibility Payment. A general power of attorney on file for other tax matters does not automatically cover an ESRP response, which is a detail that catches employers off guard when they assume their existing CPA relationship already has this authority.

How Can an Employer Reduce the Risk of Getting a Letter 226-J?

An employer reduces Letter 226-J risk by getting the underlying inputs right before Forms 1094-C and 1095-C are ever filed, since the letter is generated entirely from a mismatch between those filings and employees' individual returns. That means confirming the full-time employee count and the 95% offer threshold under the <a href="/blog/aca-employer-mandate-2026-requirements">ACA employer mandate</a> rules, checking that the affordability percentage calculation used one of the three IRS safe harbors correctly, and verifying that a <a href="/blog/section-125-cafeteria-plan-2026-guide">Section 125 cafeteria plan</a> election is reflected accurately in the Box 1 wages feeding the Form W-2 safe harbor test, since an error there can make an actually affordable plan look unaffordable on paper. Employers who run their FICA and income tax savings through a properly documented Section 125 plan, as covered in our guide to <a href="/blog/maximizing-fica-tax-savings">maximizing FICA tax savings</a>, are also the employers most likely to have clean, well-organized records ready if a Letter 226-J does arrive anyway.

Frequently Asked Questions

Is IRS Letter 226-J a final bill?
No. Letter 226-J is the IRS's initial proposal of an Employer Shared Responsibility Payment, based on Forms 1094-C and 1095-C data matched against employees' individual tax returns. A final bill only follows later, and only if the proposed amount is not reduced or eliminated through the employer's response and any resulting appeal.
What form does an employer use to respond to Letter 226-J?
An employer responds using Form 14764, the ESRP Response form, indicating agreement or disagreement with the proposed payment. An employer disagreeing with any part of the amount must also submit Form 14765, the PTC Listing, with corrections and a written explanation for each flagged employee.
How long does an employer have to respond to Letter 226-J?
The exact response date is printed on the letter itself. Employer benefits compliance advisories have widely reported that the IRS extended this window to a minimum of roughly 90 days for letters issued on or after January 1, 2025, but employers should always confirm the specific date on their own letter rather than assume a standard number of days applies.
What happens if an employer ignores Letter 226-J?
An employer that does not respond by the stated date risks having the IRS treat the originally proposed payment as accepted, moving the case toward a final bill without the benefit of the correction and appeal process that responding on time preserves.
What is Letter 227 and how does it relate to Letter 226-J?
Letter 227 is the IRS's follow-up notice after an employer responds to Letter 226-J. It acknowledges the response and states the IRS's resulting determination, which can confirm a reduced or eliminated payment, confirm the original amount, or explain further steps, including the employer's appeal rights.
Can a broker or accountant respond to Letter 226-J for the employer?
Yes, but only after the employer files Form 2848, Power of Attorney and Declaration of Representative, and that form must specifically identify the tax year and state that it covers the Section 4980H Shared Responsibility Payment. A general power of attorney on file for other matters does not automatically extend to an ESRP response.
Does responding to Letter 226-J guarantee the penalty will be reduced?
No. Responding preserves the employer's opportunity to correct errors and provide documentation, but the IRS reviews that information and can confirm the original proposed amount if the employer's records do not support a reduction. Responding accurately and with complete documentation gives an employer the best chance at a reduced or eliminated payment.
Does a Section 125 plan reduce the risk of receiving a Letter 226-J?
A Section 125 plan itself does not prevent a Letter 226-J, since the letter is triggered by ACA coverage offer and affordability issues, not by pre-tax election design. However, a well-documented Section 125 plan makes it easier to confirm the Form W-2 safe harbor calculation was accurate, which is often exactly the kind of detail that resolves a Letter 226-J in the employer's favor.

Getting ahead of a Letter 226-J is far less stressful than responding to one after it arrives. Summit Health Benefits reviews your ACA filings and Section 125 plan design together, at no cost.

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Sources: Internal Revenue Service (Understanding Your Letter 226-J and Understanding Your Letter 227 guidance pages, Form 14764 ESRP Response, Form 14765 PTC Listing, Form 2848 Power of Attorney and Declaration of Representative, Revenue Procedure 2026-22 setting the 2027 Section 4980H(a) and 4980H(b) employer mandate penalty amounts).