IRS letters warn millions about health insurance penalty

Millions of Americans recently received IRS letters warning them about potential health insurance penalties, especially under the Affordable Care Act (ACA). If you get one of these notices, it’s crucial to act fast and understand exactly what steps to take to avoid costly penalties for not having qualifying health coverage or for errors in your tax filings.​

Step-by-Step Guide: What To Do If You Receive an IRS Health Insurance Penalty Letter

1. Read the Letter Carefully

• Check which IRS letter you received (such as IRS 226-J, 5005-A, or CP215).
• Pay attention to which tax year, penalty amount, and any response deadline included in the notice.

2. Identify the Reason for the Warning

• Common penalties include failing to maintain qualifying health coverage, late or missing ACA filings, offering unaffordable insurance options, or errors in your coverage reporting.​
• For businesses, under the ACA, not providing coverage to at least 95% of your full-time employees or not furnishing 1095-C forms triggers penalties.

3. Gather Your Documentation

• Collect copies of Forms 1095-A, 1095-B, or 1095-C, insurance policy statements, transmission receipts for ACA forms, and prior IRS correspondence.

4. Determine If the Penalty Is Correct

• Review your filings sent to the IRS, compare with employer or marketplace records, and verify employee status or coverage dates.
• If you disagree, prepare documentation explaining why (such as evidence of prior coverage or corrected filings).

5. Respond Promptly & Correctly

• Use the reply form or online reply portal referenced in your letter.
• If more information is needed (ex: missing forms or proof of coverage), upload or mail documents as instructed by the IRS.
• Dispute the penalty if you have proof of compliance using concise, factual explanations—and be sure to submit everything by the printed deadline.

6. Arrange Payment or Request Relief

• If you agree with the penalty, follow payment instructions or request a payment plan as listed in your letter.
• If you believe you qualify for penalty relief, document reasonable cause and detail the steps you took to comply with coverage requirements and prevent future issues.​

7. Keep Copies and Monitor Your Case

• Always retain copies of all correspondence, proof of submission, and tracking for your response package.
• Monitor your IRS account for further updates or resolution notices.

Key Facts for Taxpayers

• ACA-related penalties for 2025 can range from hundreds to thousands of dollars per employee for businesses.​
• If you’re an employee or individual, penalties may be triggered by gaps in coverage or missing marketplace forms.
• Timely and complete responses are essential to avoid automatic penalty assessments or additional collection action.