Health Care Reform Compliance Series Part XXII: Prepare for Influx of Premium Tax Credit Notices

Premium Tax Credit NoticesMany employers know that with the creation of health insurance marketplaces or “exchanges” comes a new tax subsidy or “premium tax credit” the federal government will be giving to eligible individuals who may be their employees. However, they may not be prepared for the oncoming wave of Premium Tax Credit Notices that will be sent to them to verify their employees’ eligibility for the tax credit. These notices will require a timely response to retain employers’ rights and avoid potential monetary penalties.

What are premium tax credits?

Premium tax credits are designed to reduce the cost of premiums individuals pay for low-cost health insurance coverage (i.e., silver plan or below) through the exchanges. If an employee is offered coverage costing more than 9.5 percent of his or her household income, he or she is eligible for a premium tax credit that brings the cost below 9.5 percent. The federal government pays the credits at the time premium payments are due.

A full-time employee (i.e., one who regularly works 30 or more hours per week) is eligible to receive a premium tax credit if his or her employer does not offer health insurance coverage or offered coverage is considered unaffordable. The premium tax credit is triggered when the employee purchases health insurance through an exchange. If a full-time employee receives a premium tax credit, his or her employer may be subject to a tax penalty in 2015 for employers with more than 100 employees, or in 2016 for employers with 50 to 99 employees.

What is the Premium Tax Credit Notice?

The exchange will send employers this notice that their employee has received a premium tax credit. Employers will have 90 days to appeal the determination of the employee’s eligibility for the tax credit. If the employee meets the criteria for the tax credit (i.e., full-time employment with one employer and not offered affordable coverage), his or her employer will be subject to a tax penalty. The exchanges will send notices for every employee who receives a premium tax credit. Large companies could receive hundreds of notices. However, employers cannot be assessed tax penalties for all of these employees. Tax penalties can only be assessed for full-time employees—not for part-time employees or other variable-hour employees. To prepare for these notices, employers should assess the affordability of the health insurance they offer, determine the number of hours employees regularly work, and determine their overall number of full-time employees now.

When can I expect to receive these notices?

Employers could begin receiving notices later this year, but MSEC recommends starting to prepare now. These notices will become more important in 2015 and 2016 when the Internal Revenue Service and the U.S. Department of Health and Human Services begin to assess tax penalties against applicable large employers. Employers should establish a procedure for dealing with these notices to avoid being caught by surprise.

What should I do once I receive a notice?

Because of the potential tax penalties, you should develop a process for properly handling and responding to these notices by:

  • Designating personnel who will be responsible for promptly analyzing and responding to queries or notices from the exchanges;
  • testing your information systems to ensure they can efficiently pull the required data to track and respond to notices;
  • communicating and educating employees who may receive notices inadvertently (e.g., the mailroom, individual managers, and local business unit leaders not located at corporate headquarters); and
  • training employees who will respond on behalf of your company so responses are timely and contain the correct information. Training staff responding to these notices is also essential because the law prohibits retaliation against individuals who apply for or receive premium tax credits.

Why will this matter to my company or to my employees?

Applicable large employers are required to provide affordable health insurance to full-time employees. If you receive a notice that a full-time employee has received a premium tax credit for which he or she is not eligible, and you do not appeal it, there will be at least two negative consequences:

  • Your company will be assessed a tax penalty which could be in excess of $3,000 per employee receiving a tax credit, and
  • the employee will be getting a tax credit they are not eligible for, which may eventually result in an IRS tax lien against him or her.

MSEC benefits experts and attorneys are available to assist you with your responses to or questions about Premium Tax Credit Notices. Learn more in our Health Care Reform Learning Zone at MSEC.org.

Health Care Reform Learning Zone