IRS Letter 226-J ACA Employer Shared Responsibility Payment Response

The situation

Sandra, 47, is the HR Manager at MidWest Logistics Partners LLC, a regional trucking company with 85 full-time drivers. In March 2026 she received IRS Letter 226-J: proposed ESRP of $142,560 (48 employees × $2,970) for tax year 2023. The IRS claims MidWest failed to offer minimum essential coverage to 48 full-time employees during at least one month of 2023. Sandra has 90 days to respond using Form 14764 + Form 14765.

What Sandra doesn't know: (a) MidWest DID offer coverage to all full-time employees, but the 1095-C forms filed by their payroll provider (Paychex) had errors in the "offer of coverage" codes (Line 14 and Line 16). The errors make it LOOK like MidWest didn't offer coverage when it did. (b) Form 14765 lists 48 employees who allegedly received a Premium Tax Credit (PTC), but Sandra recognizes 12 of them as employees who terminated in 2022 and shouldn't be on the 2023 list at all. Those 12 reduce the proposed ESRP by $35,640. (c) The W-2 safe harbor may apply to some employees who were offered coverage but declined it, their contributions were less than 9.02% of Box 1 wages, so they would qualify for the affordability safe harbor even if there was a coverage gap. (d) Sandra knows what happened but doesn't know how to complete Form 14764 + Form 14765 to document the dispute line by line.

Who receives this

Applicable Large Employers (ALEs, 50–500 FTE) that use payroll processors (Gusto, Paychex, ADP Run, Rippling) for ACA reporting and receive Letter 226-J proposals due to 1094-C/1095-C errors. HR managers and CFOs at small-to-mid-market companies that lack dedicated ACA compliance staff. Industries with high part-time/variable-hour workforces (trucking, hospitality, retail, home care, construction) where ALE classification and full-time equivalent calculations are complex.

Why the agency will not advise you

The IRS cannot advise employers on how to dispute its own 226-J assessment. ACA filing tools (ACAwise, Trusaic, Benefitfocus) help employers file 1094-C/1095-C correctly but provide zero help once a 226-J arrives. The Form 14764 + 14765 response is a structured document requiring line-by-line analysis, but it's not lawyer-mandatory (the IRS explicitly invites employers to respond directly). The 90-day response window (upgraded in 2025 from 30 days) makes self-service genuinely feasible.

Key facts, with sources

• The IRS issues Letter 226-J (Employer Shared Responsibility Payment proposal) when an Applicable Large Employer (ALE, 50+ full-time equivalent employees) appears to have failed the ACA employer mandate under IRC § 4980H. For letters issued on or after January 1, 2025, the Employer Reporting Improvement Act gives employers at least 90 days to respond using Form 14764 (ESRP Response) and Form 14765 (Employee Premium Tax Credit Listing). The IRS processes approximately 15,000–25,000 ESRP assessments per year. The 2025 penalty rate is $2,970 per full-time employee (§ 4980H(a)) or $4,460 per employee who received a premium tax credit (§ 4980H(b)). A 100-FTE employer could receive a proposed ESRP of $297,000+. Source: Understanding Your Letter 226-J — Internal Revenue Service · IRS Letter 226-J: What It Is And How to Respond — Bressler, Amery & Ross
• Common ESRP errors that drive unjustified 226-J proposals: (1) Headcount errors, the IRS counts employees based on 1094-C/1095-C filings; if the employer misclassified part-time employees as full-time on the forms, the IRS overstates the ALE headcount; (2) Former employee PTC: employees listed on Form 14765 who received a Premium Tax Credit may include former employees who left before the tax year began or who were not full-time during the period; (3) Affordability safe harbor misapplication, the IRS may not have correctly applied the W-2 safe harbor (employee's required contribution ≤ 9.02% of Box 1 W-2 wages); (4) Minimum value errors, plans that the IRS flagged as not meeting minimum value may actually qualify. The 2025 Employer Reporting Improvement Act also established a 6-year statute of limitations on ESRP assessments, clarifying enforcement windows. Source: ACA Penalties and What You Need to Do When You Receive Letter 226-J — Benefitfocus · What Is IRS Letter 226-J? Complete Guide to ACA Penalty Notices (2026) — BoomTax

When to bring in a professional

Self-serve responses fit routine cases: clear facts, amounts a business can absorb, and a deadline still ahead of you. Bring in a licensed professional when the amount at stake is large relative to their fee, the facts are genuinely disputed, criminal exposure is possible, or the deadline has already passed. A short paid consultation to sanity-check your plan is often worth it even when you handle the filing yourself.

All sources for this guide

1. Understanding Your Letter 226-J — Internal Revenue Service
2. IRS Letter 226-J: What It Is And How to Respond — Bressler, Amery & Ross
3. ACA Penalties and What You Need to Do When You Receive Letter 226-J — Benefitfocus
4. What Is IRS Letter 226-J? Complete Guide to ACA Penalty Notices (2026) — BoomTax