IRS Form 10916-C: Withdrawing a Federal Tax Lien
Understand your options when responding to a proposed Employer Shared Responsibility Payment, including the process for verifying and addressing an IRS assessment.
The Internal Revenue Service (IRS) proposes tax assessments for employers subject to the Affordable Care Act (ACA) who may not have met health coverage requirements. This process is initiated when the IRS determines an employer may owe a payment for failing to meet coverage mandates for its full-time employees. The notification package includes Letter 226-J, which details the proposed penalty, and Form 14764, the response document. Understanding this correspondence is necessary for an employer to navigate the assessment.
The Employer Shared Responsibility Payment
The Employer Shared Responsibility Provisions (ESRP), under Internal Revenue Code Section 4980H, apply to businesses classified as Applicable Large Employers (ALEs), generally those with 50 or more full-time employees or equivalents. An employer’s potential liability is triggered when at least one full-time employee forgoes the employer’s health plan, enrolls in coverage through a Health Insurance Marketplace, and is approved for a premium tax credit.
The IRS can propose an ESRP under two distinct circumstances. The first, under Section 4980H(a), arises if an ALE fails to offer minimum essential coverage to at least 95% of its full-time employees and their dependents. If one full-time employee receives a premium tax credit, the employer faces a penalty calculated on its entire full-time workforce. For 2025, this penalty is $2,900 per year ($241.67 per month) for each full-time employee, excluding the first 30 employees.
A different penalty, under Section 4980H(b), may apply if the employer offers coverage to at least 95% of its workforce, but the coverage is either unaffordable or fails to provide minimum value. For 2025, coverage is affordable if the employee’s contribution for self-only coverage does not exceed 9.02% of their household income. Minimum value means the plan must cover at least 60% of total allowed costs. This penalty is $4,350 per year ($362.50 per month) for each full-time employee who receives a premium tax credit.
The process of proposing these payments begins with IRS Letter 226-J. This letter is not a bill but a preliminary notification that the IRS believes an ESRP is owed based on the employer’s Forms 1094-C and 1095-C, and employee tax returns. The letter details the proposed payment, explains its calculation, and lists the employees who received a premium tax credit.
Information and Decisions for Responding to Letter 226-J
Upon receiving Letter 226-J, an employer must conduct an internal review before deciding how to respond. This involves examining the information provided by the IRS and comparing it against company records. The letter includes Form 14765, the Employee Premium Tax Credit (PTC) Listing, which identifies by month the employees the IRS states received a subsidy. This list is the basis for the employer’s verification process.
The employer should cross-reference the PTC Listing with its payroll data, attendance records, and health insurance enrollment or waiver forms for the tax year. The goal is to confirm each listed individual’s status as a full-time employee and to verify whether a compliant offer of coverage was made. An offer is compliant if it provided minimum value and was affordable according to an IRS-sanctioned safe harbor, such as the Rate of Pay or W-2 safe harbors.
This internal audit leads to a decision: whether to agree or disagree with the proposed assessment. If the review confirms the IRS’s findings and the employer concurs that it failed to meet its obligations, the path is agreement.
Conversely, if the internal review uncovers discrepancies, the employer will choose to disagree. This could be due to errors in the employer’s original Form 1095-C filings, a misclassification of an employee’s status, or proof that an affordable, minimum-value offer of coverage was made and declined. The decision to disagree requires compiling documentation to support the employer’s position.
Responding to the IRS Proposal
An employer’s response must be submitted by the deadline specified in Letter 226-J, which is 30 days from the date of the letter. The actions taken depend on the decision to accept or contest the proposed ESRP.
For an employer that agrees with the proposed payment, the process is direct. The authorized representative must sign and date Form 14764, ESRP Response, checking the box that indicates full agreement. After mailing the form to the IRS, the agency will assess the ESRP and issue a Notice CP220J, which is the official demand for payment. The employer must remit the full amount by the due date on the notice to avoid further interest and penalties.
If the employer disagrees with the proposed ESRP, it must not sign the agreement section of Form 14764. Instead, the employer must complete the section indicating disagreement and provide a written explanation of its position. This response should include a corrected Form 14765, if applicable, and supporting documentation, such as copies of health coverage offer letters or payroll reports.
After reviewing the submitted information, the IRS will issue a Letter 227. This letter will either acknowledge that the ESRP is not owed (Letter 227-K), propose a revised, lower penalty (Letter 227-L), or uphold the original assessment. Should disagreements persist, the employer may be offered a pre-assessment conference with the IRS Office of Appeals.