How to answer Letter 226-J, step by step
Letter 226-J proposes an Employer Shared Responsibility Payment (ESRP) under IRC §4980H. The response is a reconciliation: you check the IRS's month-by-month claim on Form 14765 against your own Forms 1095-C, apply the codes and safe harbors, and complete Form 14764 indicating agreement or disagreement. Here is the sequence, in order.
- 1. Calendar the 90-day deadline
- 2. Pull your filed Forms 1094-C/1095-C
- 3. Read the 14765 — the highlight rule
- 4. Check the Line 16 relief codes
- 5. Verify the Line 14 codes
- 6. Compute the three safe harbors
- 7. Build the corrected 14765 matrix
- 8. Complete Form 14764
- 9. Mail and keep copies
- 10. What comes next
- Common questions
1. Calendar the 90-day deadline
The statute now gives you at least 90 days to respond — see our guide What is Letter 226-J? for the P.L. 118-168 background and why the printed response date still controls.
Sources: P.L. 118-168 (congress.gov); IRS ESRP Q&A.
2. Pull your filed Forms 1094-C/1095-C
Before touching the IRS's listing, assemble your own records for the tax year in question: the Forms 1094-C and 1095-C as filed, payroll records showing hours worked (full-time status), benefits records showing coverage offers and enrollment, and any affordability worksheets. The reconciliation is a comparison — the IRS's claim vs. your filed record — so both sides need to be in front of you.
3. Read the 14765 — the highlight rule
Form 14765, the Employee PTC Listing, is the IRS's factual claim: one row per listed employee, with the Line 14/16 codes from that employee's Form 1095-C and twelve monthly indicator boxes. The form's own instructions state the governing rule:
Unhighlighted months are the bill. Every unhighlighted month is a month you must verify — was the employee full-time, was a PTC actually received, does a relief code or safe harbor apply? Full detail: 14765 reconciliation, explained.
Source: Form 14765 (IRS PDF).
4. Check the Line 16 relief codes
Line 16 of Form 1095-C carries the relief and safe-harbor codes (2A–2H). For each listed employee-month, check whether the reported code already relieves the month:
- 2A — not employed that month; 2B — not full-time; 2C — enrolled in coverage; 2D — limited non-assessment period; 2E — multiemployer relief.
- 2F / 2G / 2H — the three affordability safe harbors (W-2, federal poverty line, rate of pay).
Watch for the IRS's override codes: XF, XG, XH on the 14765 mean the IRS determined the claimed safe harbor (2F, 2G, 2H) does not apply for that month. The form's instructions say that if you maintain the safe harbor applies, you provide your computation with the written request for reconsideration — attach the math.
Source: Form 14765 (IRS PDF); IRS — Instructions for Forms 1094-C and 1095-C.
5. Verify the Line 14 codes
Line 14 describes the offer of coverage (codes 1A–1U). Confirm each listed employee's code matches what was actually offered:
- 1H means no offer of coverage — the code most directly tied to §4980H(a) exposure.
- 1F means the offer did not provide minimum value.
- 1G marks non-full-time individuals.
- 1L–1U are ICHRA offers (individual coverage HRAs), with affordability varying by ZIP-code basis — a series many summaries omit.
A month coded 1H for an employee who was actually offered affordable coverage is a coding error in your favor to correct — the response matrix reflects the corrected code.
Source: IRS — Instructions for Forms 1094-C and 1095-C.
6. Compute the three safe harbors
For months where the employee received a PTC, an affordability safe harbor can still relieve the month. The three, keyed to their Line 16 codes:
- W-2 safe harbor (2F) — the employee's required contribution for self-only coverage does not exceed the indexed affordability percentage of that employee's W-2 wages from the employer for the calendar year.
- Federal poverty line safe harbor (2G) — the required contribution does not exceed the indexed percentage of the federal poverty line for a single individual for the calendar year.
- Rate-of-pay safe harbor (2H) — the required contribution does not exceed the indexed percentage of the employee's hourly rate × 130 hours (or monthly salary for salaried employees).
The affordability percentage is set annually by IRS Revenue Procedure under §36B — use the figure for the tax year in question, not the current year. See the safe-harbor checker for the formulas and year-by-year figures.
Source: IRS ESRP Q&A — safe harbors.
7. Build the corrected 14765 matrix
With codes verified and safe harbors computed, rebuild the month-by-month matrix: each listed employee-month either stands as assessable (unhighlighted) or is highlighted out with the reason — a relief code that applies, a safe harbor with its computation attached, a corrected Line 14 code, or a full-time-status correction. This corrected matrix is the evidentiary heart of the response; it is what the IRS compares against its own listing.
8. Complete Form 14764
Form 14764 (ESRP Response) is the form on which you indicate agreement or disagreement with the proposed payment. It provides for agreeing with the proposal in full, or disagreeing — in which case the corrected 14765 matrix and supporting documentation travel with it. Disagreement can be month-specific: the matrix highlights which months you contest and why.
Source: IRS — Understanding Your Letter 226-J.
9. Mail and keep copies
The response goes to the address printed in the letter. A complete packet typically contains: the completed Form 14764, the corrected 14765 matrix, safe-harbor computations for any month where you maintain the harbor applies despite an XF/XG/XH marking, and supporting documentation (payroll, coverage-offer, and enrollment records). Mail with tracked delivery and keep copies of everything sent plus the tracking receipt — the packet is your record if the case proceeds to Appeals.
10. What comes next
The IRS answers with one of the Letter 227 variants:
- 227-J — agreement signed; ESRP assessed; case closed.
- 227-K — ESRP reduced to zero; case closed.
- 227-L — revised ESRP with an updated 14765; agree, or request a meeting with the manager and/or Appeals.
- 227-M — ESRP unchanged; agree, or request a meeting with the manager and/or Appeals.
- 227-N — Appeals decision; case closed.
- 227-O — revised ESRP for tax-exempt and government entities.
After 227-L or 227-M, you may request a pre-assessment conference with the IRS Office of Appeals in writing by the response date on that letter. If you never responded at all, the IRS assesses the proposed amount and issues Notice CP 220J.
Source: IRS — Understanding Your Letter 227.
Common questions
Yes. Form 14764 lets you indicate agreement or disagreement, and the corrected 14765 matrix is built month by month — months with applicable relief or corrected codes are highlighted out, while months that stand remain unhighlighted.
The 226-J response is the corrected 14765 matrix plus Form 14764 — a reconciliation of what was reported, not a re-filing. If the underlying 1095-Cs contained errors, corrected information returns are a separate filing (X in CORRECTED, 1094-C transmittal, employee copy). The response packet can reference corrections that were filed.
The IRS assesses the proposed payment and issues Notice CP 220J — notice and demand for payment. The reconciliation work has to happen before the printed response date.
No. The 226-J response is Form 14764 plus a corrected 14765 matrix; the 972CG response is a written penalty statement under Reg. §301.6724-1. They are separate submissions with separate deadlines — the 972CG clock (45 days) is the tighter one, so calendar it first with our free 972CG deadline calculator.
Per the form's instructions, it means the IRS determined the safe harbor you claimed (2F, 2G, or 2H) does not apply for that month. If you maintain the safe harbor applies, the instructions say to provide your computation with the written request for reconsideration — attach the math.
This guide is general information, not legal or tax advice. Statutes and IRS pages change — verify against the sources linked above.