IRS Letter 5699: 30-Day Response, Options, and Penalties

IRS Letter 5699 is an inquiry telling you the IRS has no Forms 1094-C or 1095-C on file for a tax year in which its records suggest you were required to file them, and it gives you 30 days from the date printed on the letter to explain. Receiving the letter is not itself a penalty. Ignoring it almost always becomes one. What you send back in that 30-day window decides whether the matter closes quietly or moves into a formal penalty assessment.

What the Letter Is Actually Asking

Under IRC Section 6056, employers that qualify as Applicable Large Employers (ALEs) must file annual information returns reporting the health coverage they offered to full-time employees.¹ The IRS cross-references payroll data, W-2 filings, and other records to estimate your workforce size. When those records suggest you had 50 or more full-time employees but no matching 1094-C or 1095-C came in, the system generates Letter 5699.

The letter is not a penalty notice. It’s the first formal step in a compliance process, and if your response is missing or unsatisfactory the IRS moves toward assessing penalties for failure to file and failure to furnish employee statements.²

The 30-Day Clock

The 30 days run from the date printed on the letter, not the day the envelope reached you. Postal delays eat into your window, so open and read the letter the day it arrives. If it has been sitting on someone’s desk for two weeks, you may have very little time left.

The letter lists a specific mailing address and fax number for your reply. Send it by a method that produces proof of delivery, such as certified mail with return receipt or a fax confirmation page, and keep copies of everything. If the IRS later says it never received your response, that documentation is what protects you.

Your Response Options

The letter offers several response paths depending on your situation. The IRS Internal Revenue Manual describes four main categories.²

You already filed under a different name or EIN. Give the name, Employer Identification Number, and the date you submitted the returns. This is common after a restructuring, merger, or filing through a parent entity, and the IRS usually just needs to match the filing to the right record.
You should have filed but haven’t. Either include the completed Forms 1094-C and 1095-C with your response or state when you will file them electronically. Paper filing is only an option if you have fewer than 10 total information returns for the year; otherwise electronic filing is required.
You were not an ALE for that tax year. Provide workforce data showing your average monthly count of full-time employees plus full-time equivalents came in below 50. You need monthly calculations, not just an annual estimate.
Other. If none of the above fits, write a free-form explanation covering an exemption or unusual circumstance the IRS hasn’t accounted for.

Whichever option applies, answer as completely as you can. Vague or partial answers tend to trigger follow-up correspondence rather than close the case.

If You Should Have Filed, File Fast

If option two is your situation, speed changes the dollar amount at stake. Penalties for late filing and late furnishing drop sharply when the correction happens quickly. For returns due in 2026, the reduced rates are:

Corrected within 30 days of the filing deadline: $60 per return.
Corrected after 30 days but by August 1: $130 per return.

Those reduced rates apply to both the Section 6721 (IRS filing) and Section 6722 (employee statement) penalties.³ The full unreduced amount is $340 per return in each provision.⁴ If the original deadline was March 31 and you file by August 1, the combined exposure per employee is $260 rather than $680.

Confirming Whether You Were an ALE

Before picking option three, check the calculation the IRS is working from. An employer reaches ALE status for a calendar year if it averaged at least 50 full-time employees, including full-time equivalents, on business days during the preceding calendar year.⁵ Both for-profit and nonprofit employers can qualify.

Full-time for this purpose means at least 30 hours of service per week or 130 hours in a calendar month, a threshold that catches some employers by surprise.⁶ Part-time workers convert into full-time equivalents each month by adding their hours (capped at 120 per worker) and dividing by 120, then adding the FTE result to your actual full-time headcount.⁷ Businesses under common ownership or control combine their employee counts across all entities; if the combined number reaches 50, every entity in the group is an ALE and each must file its own returns.⁸ That last rule catches owners who spread operations across several smaller companies expecting each to fall below the threshold on its own.

What the Penalties Look Like Unresolved

Two separate penalty provisions apply to an ALE that fails to file. Both adjust for inflation.

Section 6721 covers failure to file with the IRS: $340 per 1094-C or 1095-C for returns due in 2026, with an annual cap of $4,098,500 for employers with average gross receipts above $5 million and $1,366,000 for smaller employers.⁴³ Section 6722 covers failure to furnish the 1095-C to the employee: another $340 per statement. Because most non-filers owe both, the effective exposure is $680 per employee. An ALE with 100 full-time employees that missed both obligations entirely could face $68,000 in penalties for a single tax year.

If the IRS determines the failure was willful, the intentional disregard rate is $680 per return with no annual cap.⁴ The absence of a cap is what makes this tier genuinely dangerous for larger employers, and ignoring Letter 5699 strengthens the argument that the failure was intentional.

Asking for a Reasonable Cause Waiver

The IRS can waive Section 6721 and Section 6722 penalties if you show reasonable cause and that the failure was not due to willful neglect.⁹ You generally need to show two things: that you acted responsibly both before and after the failure, and that significant mitigating factors existed or the failure resulted from circumstances beyond your control.

The request must be in writing, signed under penalties of perjury, and specific. Generic explanations like “we didn’t know about the requirement” rarely succeed on their own. Documented obstacles carry more weight: a key employee’s sudden departure, a payroll vendor’s system failure, a natural disaster affecting records. The IRS also gives credit to employers who filed promptly once they discovered the problem, so a fast, complete response to Letter 5699 can itself become part of the reasonable cause argument.

What Happens If You Don’t Respond

Ignoring the letter starts an escalation chain that gets harder to reverse at each step.²

Letter 5698: a follow-up reminder issued after the 30-day window closes with no reply.
Case assignment to a compliance examiner, who evaluates whether to pursue formal penalties.
Letter 5005-A: the formal penalty assessment cover letter notifying you that failure-to-file and failure-to-furnish penalties have been approved.

After assessment the IRS sends a bill, and if you don’t pay or dispute it, collection can proceed to a Notice of Intent to Levy. Responding at the 5699 stage is dramatically easier than fighting an assessed penalty after the fact.

How Letter 5699 Is Different From Letter 226-J

The two letters both involve ACA compliance but address different problems, and employers routinely confuse them. Letter 5699 asks why you didn’t file information returns at all, and the exposure is under Sections 6721 and 6722. Letter 226-J is a proposed assessment of the Employer Shared Responsibility Payment under Section 4980H, sent when your filed returns suggest you either didn’t offer coverage to enough full-time employees or the coverage wasn’t affordable.¹⁰ Letter 5699 means the IRS has no data from you. Letter 226-J means the IRS reviewed your data and believes you owe.

The response windows differ as well. Letter 5699 gives you 30 days; Letter 226-J gives 90. An unresolved 5699 can eventually produce a 226-J, because once the IRS establishes you were an ALE that failed to report, it may also assess ESRP liability for having failed to offer qualifying coverage.¹⁰

1
Internal Revenue Service. Questions and Answers on Reporting of Offers of Health Insurance Coverage by Employers Section 6056
2
Internal Revenue Service. Internal Revenue Manual 25.21.4 – IRC 6056 Non-Filer and IRC 4980H Compliance Process
3
Internal Revenue Service. Internal Revenue Bulletin 2024-45
4
Internal Revenue Service. Information Return Penalties
5
Office of the Law Revision Counsel. 26 U.S. Code 4980H – Shared Responsibility for Employers Regarding Health Coverage
6
Internal Revenue Service. Identifying Full-Time Employees
7
Internal Revenue Service. Determining if an Employer Is an Applicable Large Employer
8
Internal Revenue Service. Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act
9
Internal Revenue Service. Internal Revenue Manual 20.1.7 – Information Return Penalties
10
Internal Revenue Service. Understanding Your Letter 226-J