ACA Recent Developments (Benefit Minute)
Posted in: Benefit Minute, Employee Benefits
Marketplace Subsidy Notices to Employers
In June, the Department of Health and Human Services (HHS) mailed several hundred thousand Marketplace subsidy notices to employers. These notices informed employers that one or more of their employees had qualified for a premium tax credit (subsidy) through the federal Marketplace. Similar notices have also been sent by state-run Marketplaces.
Applicable large employers (those subject to the employer mandate) may be concerned that receipt of the notice will result in an employer mandate penalty because it implies that the employer did not offer minimum essential coverage to the employee or the coverage offered did not meet the minimum value and/or affordability requirements with respect to that employee. This is not the case. The subsidy notification process is different than and completely separate from the IRS certification process that may eventually result in assessment of employer mandate penalties by the IRS. These notices only alert an employer that an employee is entitled to a subsidy. They do not mean that an employer mandate penalty is owed.
What Should an Employer Do?
An appeal is not required, even if affordable minimum value coverage was offered. However, employers may wish to appeal subsidy notices if they believe that the employee received the subsidy in error. The benefits of filing an appeal include:
- Helping the employee – an employee who receives a premium tax credit in error may be required to repay the subsidy to the IRS when the tax return is filed. Timely correction of an incorrect subsidy may lessen this future tax liability.
- Potentially limiting IRS penalty assessments – if the employee is found ineligible for the premium tax credit, then the employer may prevent future correspondence from the IRS regarding penalty assessments.
There are several complications to appealing, including:
- Affordability determination – an individual’s eligibility for a premium tax credit is based on household income (an amount unknown to the employer). Therefore it may not always be possible for an employer to determine subsidy eligibility.
- Administrative considerations – managing the appeals process can be time-consuming and may require accumulation of supporting information (which may or may not be needed in the future if the IRS attempts to assess a penalty).
- Employee relations – some employees may be upset that their employer is attempting to disqualify them from a premium tax credit (whether or not they are actually entitled to it).
- Timing – by the time the appeal is adjudicated, the 2016 calendar year may be over and there is no corrective action that the employee can take other than repay the subsidy.
In certain circumstances, there is no reason to appeal. If the employee was not offered coverage (e.g. due to part time status) or if the individual is not an employee, then the individual may be entitled to the premium tax credit. The only determination that HHS makes is eligibility for the premium tax credit.
Form 1095 Filing Update
June 30, 2016 was the deadline for employers to electronically file Forms 1094-C and 1095-C. However, the IRS has announced that the ACA Information Return (AIR) system will remain up and running, so employers who did not timely file should complete the filings after the deadline. Employers who did not meet the June 30 deadline will not generally be assessed late filing penalties if legitimate efforts were made to timely register with the AIR system and file the returns as long as the process is completed as soon as possible. Employers who had a transmission file that was rejected by the AIR system have 60 days from the date of the rejection to successfully complete the transmission.
Employers with transmission files that were “Accepted with Errors” may continue to submit corrections after June 30. Two of the most common errors are missing tax identification numbers (TIN) or name/TIN mismatches (meaning that the name and TIN do not match the IRS database). No details of the error have been provided by the IRS. This is particularly problematic for employers with self-insured plans who reported covered dependents. Employers should take steps to determine whether the information submitted is consistent with other records maintained by the employer. If errors are identified, corrected submissions are required. In some cases, the employer may be unable to identify any correction. Regardless, the employer must show that the discrepancies were investigated and corrected as needed in order to meet the good faith standard for 2015 (and therefore mitigate penalty exposure for inaccurate Form 1095-C filings).
The IRS has also stated that employers who were eligible to file paper forms but missed the May 31 deadline should complete the filing of paper returns as soon as possible.
TIN Solicitation Process
On an ongoing basis, employers should have a process in place to obtain correct tax identification numbers. The IRS requires three attempts to obtain a TIN, including:
- At the time of initial enrollment;
- By December 31 of the same year; and
- By December 31 of the following year.
If the TIN is not obtained after three attempts, the employer has fulfilled its obligation, thereby avoiding IRS penalties for failure to file a correct Form 1095-C.
