What to Do If an Employee Receives a Premium Tax Credit

What to Do If an Employee Receives a Premium Tax Credit: A Guide for Employers

As an employer, ensuring compliance with the Affordable Care Act (ACA) is not only crucial for avoiding penalties, but also for safeguarding your employees’ access to health insurance benefits. However, what happens when one of your employees receives a premium tax credit for purchasing health insurance through the Health Insurance Marketplace? This situation can raise several questions for employers regarding their ACA obligations. In this guide, we’ll outline what employers need to know and how they can navigate this issue while staying compliant.

What is a Premium Tax Credit?

A premium tax credit is a financial assistance provided by the federal government to help individuals purchase health insurance coverage through the Health Insurance Marketplace. It is available to employees who meet certain income criteria and are not offered affordable, minimum essential coverage from their employer. If an employee receives a premium tax credit, it generally means that they did not have access to an affordable employer-sponsored health plan.

Why Does It Matter to Employers?

For employers, particularly those classified as Applicable Large Employers (ALEs) under the ACA, the receipt of a premium tax credit by one of their employees triggers specific responsibilities. If an ALE fails to offer coverage or provides coverage that is unaffordable or doesn’t meet minimum value standards, the employer may be subject to the Employer Shared Responsibility Payment—a penalty imposed by the IRS.

If at least one full-time employee receives a premium tax credit for purchasing health insurance on the Marketplace, the IRS may assess a penalty against the employer. This is why it’s crucial for employers to track and manage ACA compliance effectively.

Steps to Take When an Employee Receives a Premium Tax Credit

If one of your employees receives a premium tax credit, follow these steps to ensure compliance and avoid penalties:

1. Verify Your Offer of Coverage

• Ensure that the employee was indeed offered an affordable health plan that provides minimum value.

• If you mistakenly did not offer the employee coverage, or the coverage was unaffordable, it’s important to address this mistake to prevent future issues.

• ACA-Track can help employers track and monitor their employees’ eligibility for health insurance and ensure that all coverage offers meet the ACA’s affordability and minimum value standards.

2. Review the 1095-C Forms

• As an ALE, you are required to report offers of coverage on Form 1095-C. If the employee received a premium tax credit, this information will be recorded on the form.

• Ensure that the form reflects the correct offer of coverage and that any affordability issues are flagged.

• Make sure the Form 1095-C is filed with the IRS and provided to the employee in a timely manner. Form 1095-C should be submitted to employees by January 31 of the following year and to the IRS by March 31.

3. Respond to IRS Letter 226-J

• If an employee receives a premium tax credit, the IRS may send a Letter 226-J, which notifies the employer of a potential penalty for not meeting ACA requirements. If your company receives this letter, immediate action is required.

• ACA-Track provides support with ACA reporting and penalty tracking, ensuring that any discrepancies in your reporting are corrected before submitting to the IRS.

• You will need to assess whether you made a qualifying offer of coverage to the employee. If there was an issue, ensure you have the documentation to support your case.

4. Appeal Penalties if Necessary

• If you believe that the IRS wrongly assessed a penalty due to incorrect information or misunderstanding, you may appeal the decision. Typically, this involves providing documentation that shows you offered affordable coverage, or that the employee was ineligible for the premium tax credit.

• In some cases, the penalty could be waived if the employee received the tax credit due to an error on the employer’s part.

5. Keep Detailed Records

• It is essential that you maintain accurate records of your health insurance offers to employees. Tracking this information is key for both IRS compliance and protecting your company from penalties.

• ACA-Track simplifies this by collecting and organizing data on employee hours worked, insurance status, and eligibility. This allows you to quickly retrieve necessary documentation in case of an audit or an IRS penalty notice.

6. Work with ACA Compliance Professionals

• ACA compliance is complex, and mistakes can be costly. Working with a provider like ACA-Track ensures that your company is compliant with all aspects of ACA regulations.

• ACA-Track offers a comprehensive ACA compliance solution, including monthly line code audits for Form 1095-C, variable hour tracking, and full integration with payroll systems. This helps prevent errors and ensures your ACA reports are accurate.

7. Monitor Ongoing Eligibility

• Even if an employee receives a premium tax credit one year, their eligibility may change in subsequent years. Keep an eye on employee eligibility for tax credits and offers of health insurance, particularly for variable-hour employees.

• ACA-Track offers powerful monitoring features that alert employers when employees exceed eligibility thresholds, ensuring that coverage offers are timely and accurate.

Conclusion: Stay Proactive with ACA-Track

Handling the situation when an employee receives a premium tax credit can be overwhelming, but it’s a crucial part of staying compliant with ACA regulations. By tracking employee hours, offering affordable coverage, and accurately reporting to the IRS, employers can reduce the risk of penalties.

With ACA-Track, you can streamline your ACA compliance efforts. Whether it’s collecting employee data, monitoring eligibility, reporting accurately, or fixing ACA reporting errors, ACA-Track offers a comprehensive solution to ensure that your company is always compliant with ACA requirements.

Visit ACA-Track for more information on how they can help simplify your ACA compliance tracking and reporting process. By using their platform, you’ll have access to a dedicated Client Success Advisor to guide you through the complexities of ACA compliance with ease.

Remember, staying proactive with ACA compliance today can prevent costly penalties tomorrow.