Employee Benefits Compliance

Affordable Care Act Penalty Letters…Notices…What to Know…Let’s Keep it Basic

With a new year comes new compliance issues arising from years’ past. Most alarming to many employer-plan sponsors is the dreaded Affordable Care Act (ACA) penalty letter. Upon receiving letters from the Exchange Marketplace or Internal Revenue Service (IRS), employers can be left uncertain as to what the letter even means and what to do next. This is what you need to know now about the two most common ACA letters an employer may receive.

Marketplace Subsidy Notice

This notice informs the employer that the Marketplace/Exchange has determined that one of the employees is eligible for a premium tax subsidy to discount their premium for coverage accessed in the Marketplace. The notice is sent whether the employer is large or small, subject to the Affordable Care Act’s Employer Shared Responsibility (ACA & ESR, respectively) or not. The notice is not a penalty assessment notice. There would be “1411” oftentimes on the letter. For more information, see the Leavitt article. What you need to know is: This is not the 226J IRS proposed penalty assessment letter. It may be sent to any employer – even those not subject to a penalty. It is merely about employee eligibility for the premium tax penalty. While an appeal is not required where the ACA ESR does not apply, the employer can appeal if the employee was offered affordable, minimum value coverage.

IRS Letter 226(J)

The IRS issues these proposed penalty letters to employers that are subject to the ACA’s ESR mandate but failed to comply. The IRS makes these determinations through review of the ACA reporting forms and other information submitted by the employer, employee and/or insurance carriers. It is possible that the IRS has inaccurate or incomplete information when assessing the proposed penalty. Which is why the IRS affords employers the opportunity to submit evidence that the employer did comply. Employers have 45 days from receipt of this letter to submit the evidence – which often includes the benefits booklets, enrollment, eligibility and ACA reporting forms, where applicable. For more information, see the Leavitt article.


While it is not uncommon to receive the letter or notice in error, it is still nevertheless serious enough to warrant immediate attention. Be sure to pay attention to letters and notices received regarding the ACA. At the same time, there is no need for alarm when receiving the letter or notice when it may not be accurate or apply. The best approach is to respond with evidence where the ACA ESR applies if disagreeing with the stated facts in the letter or notice. And do so timely. Provide a statement as to the reason the error occurred and why it will not again – or why the penalty or tax credit is an error. Then wait for a response. If an error, the penalty or premium tax credit will be reassessed. You should always consider consulting a tax professional when completing tax documents for the IRS.

While the Leavitt Group cannot complete tax documents or responses to them – we are the broker partner that can help employers along the bumpy ACA road and help employers be compliant! If you are not already signed up, subscribe to Leavitt Group news to ensure prompt notice of new or changing rules, as well as helpful guidance on a variety of employee benefits topics. Just use the search button to browse your topic of interest on the news.leavitt.com site. Subscribe here!