The IRS describes the Affordable Care Act premium tax credit (also called the health insurance subsidy) as “an advanceable, refundable tax credit designed to help eligible individuals and families with low or moderate income afford health insurance purchased through the health insurance marketplace” that opened January 1, 2014.
Those who are eligible can have the credit paid directly to their insurance company to lower their monthly premium payments, or can claim all of the credit when they file their tax return.
The insurance exchanges that emerged with the Affordable Care Act will soon start sending out notices to employers of employees who received premium tax credits. Even though the employer mandate was put off until next year and the year after, employers should prepare now to deal with the notices, because they are an early indication of the penalties that will be assessed for non-compliance.
Ali Master of Ernst & Young recommends developing procedures for processing the notices. Thousands of dollars in penalty assessments are at stake. For employers who don’t offer coverage, it means a $2,000 penalty assessment per each full-time employee who receives a premium tax credit after the first 30. For employers who do offer coverage but have a full-time employee who receives a premium tax credit because the coverage is inadequate or unaffordable as defined by the ACA, it means a penalty assessment of $3,000 for that employee.
The exchanges will send a notice for every employee that receives a premium tax credit, whether or not the employee is eligible for employer-sponsored health insurance and whether or not the employer provides health insurance. So employers need to have a process in place to receive the notices, review them for action, and follow up if necessary. Employers have 90 days to appeal the determination of the employee’s eligibility for coverage.
Ernst & Young’s Master recommends employers do the following before premium tax credits notices are received:
Know who will be responsible for reviewing and responding to the notices.
Prepare systems to be able to produce necessary data to track and respond to notices.
Develop an efficient process to handle the notices quickly and accurately so deadlines or opportunities for appeal aren’t missed.
Master says that the notices should be given priority so that they are not lost in the shuffle, sent to individuals in the company who haven’t been informed of how to deal with them, or sit on a desk in the wrong department. He advises employers to train mail handling clerks, receptionists, file clerks, and any other staff who may receive and distribute incoming mail to understand the importance of the notices and know who they need to go to for processing.
He also reminds large employers with more than one location that the letters are sent out based on information given by employees so they could get sent to a branch instead of a corporate headquarters. If the employees there don’t know who in the company is handling the letters, review and response could get delayed possibly beyond the time allowed for an appeal. The IRS also cautions employers to determine what address they prefer notices be sent to.
Master notes that the notices will be more important in 2015 and in the future, but employers should put their processing plans in place now. He says that employers with employees who claim the tax credit incorrectly need to appeal the notices so employees don’t end up with tax liens, which could create an adversarial working relationship between employers and employees.
Contact PAYDAY for solutions in accordance to employee premium tax credit notices.
PAYDAY Workforce Solutions provides a single database SAAS solution for Human Capital Management (HCM) including payroll, human resources, time management, benefits administration and onboarding to companies of all sizes and in various industries.
625 The City Drive South, Suite 250
Orange, CA 92868