Letter 226-J (Letter 226J): The IRS Proposes an Employer Shared Responsibility Payment

What Letter 226-J is and who gets it

The IRS page for this letter calls it “the initial letter issued to Applicable Large Employers (ALEs) to notify them that they may be liable for an Employer Shared Responsibility Payment (ESRP).” The IRS’s ESRP questions and answers say an employer counts as an ALE for a year if it “employed an average of at least 50 full-time employees (including full-time equivalent employees) during the preceding calendar year.”

The IRS builds the proposal from two sources: the Forms 1094-C and 1095-C the employer filed, and its employees’ own income tax returns. The questions and answers say the letter itemizes the proposed payment by month and comes with Form 14764, ESRP Response, and Form 14765, Employee Premium Tax Credit (PTC) Listing, which lists the full-time employees behind the proposal. The letter also names an IRS employee to contact.

When to answer: the date on your letter

Answer by the response date printed on your Letter 226-J. The IRS’s questions and answers say that date “generally will be 30 days from the date of Letter 226J.”

Since December 23, 2024, IRC 4980H(d)(4) says the IRS must allow “at least 90 days from the date of the first letter” before it takes further action, and the law applies it to “assessments proposed in taxable years beginning after” that date. The IRS has not said how it applies that rule to a letter.

If the response date on your letter comes sooner than that, call or write the contact person the letter names before the response date. The IRS page for Letter 226-J tells employers to use the letter’s contact information if they “need additional time to respond.”

How to answer, and what each answer leads to

Either way, you send back Form 14764. If you agree, the IRS page says to sign the response form and return it with full payment. The IRS manual says the IRS then mails Letter 227-J and assesses the payment.

If you disagree, the IRS page says you “must provide a full explanation of your disagreement.” The manual says the examiner changes the proposal only when your reasons support your position.

If you do not answer, the manual says an examiner may phone you, and the IRS mails Letter 5040-J, a second notice, with a copy of Letter 226-J. If that letter also goes unanswered, the IRS assesses the payment and sends Notice CP220J, the bill.

The Letter 227 that answers your response

The IRS answers a response with a version of Letter 227. The manual lists them: 227-J confirms your signed agreement and says the IRS will assess the payment; 227-K shows the proposed payment cut to zero; 227-L shows a revised payment; 227-M says the payment did not change; and 227-N reports the result from the IRS Independent Office of Appeals.

Letters 227-J, 227-K and 227-N close the case and need no answer. Letters 227-L and 227-M let you agree, disagree, or ask for an appeal, and they carry their own response date.

Appeals before the IRS assesses the payment

The manual says: “Unagreed cases involving a proposed ESRP are subject to pre-assessment appeal rights.” If you still disagree after a Letter 227-L or 227-M, you may ask to meet the examiner’s supervisor, or ask for an Appeals conference. The questions and answers say to ask in writing by the response date on the Letter 227.

An Appeals request needs a protest, a written statement of why you disagree. When the total proposed payment for all months of the year is $25,000 or less, the manual accepts a small case request by letter, with your reasons. Above $25,000, it requires a formal written protest.

What agreeing, or staying silent, gives up

This is the most important part of the letter to get right. The IRS manual for Collection Due Process (CDP) hearings, the Appeals hearing on IRS collection action, says a taxpayer who signed a waiver form agreeing to the assessment cannot challenge the liability itself for the periods on that form. It names Form 14764, ESRP Response, as one of those forms.

The same section lists Letter 227-L and Letter 5040-J as letters that can count as your earlier chance to dispute the amount. So once you sign Form 14764 to agree, or receive one of those letters, you may lose the right to argue the amount in a later CDP hearing. Our Collection Due Process Hearing Prep tool explains what that hearing can still cover.

After the IRS assesses the payment

The questions and answers say an employer does not have to pay before the IRS sends notice and demand for payment, Notice CP220J. Our CP220J page covers that bill, interest and collection.

If you pay and still disagree, the manual says that before you file a claim for refund you “must pay the full amount of the ESRP assessment,” or the whole amount for the months you dispute.

The same 2024 law gave the IRS a fixed time to assess. It ends “at the end of the 6-year period beginning on the due date for filing the return under section 6056,” or beginning on the date the employer filed it, if later. The manual explains that the section 6056 return means Forms 1094-C and 1095-C. The rule applies to returns due after December 31, 2024.

What people mistake Letter 226-J for

Some employers read Letter 226-J as a bill. The IRS page answers “Is this letter a bill?” with “No, the letter is the initial proposal of the ESRP.” The bill, if one comes, is Notice CP220J.

Others treat it like a penalty the IRS might waive for a good reason. The manual says: “Reasonable Cause is not applicable to ESRP.” Your response has to show where the proposal gets the facts wrong.

Common Questions