One provision of the Affordable Care Act (ACA) is employer shared responsibility, also known as “pay or play” penalties. Under this provision, if an applicable large employer (ALE) does not offer affordable health coverage providing minimum benefits to full-time employees and their dependents, the employer could be subject to a penalty. This penalty helps to offset the cost of the premium tax credit or any subsidies that employees who have coverage through the health insurance marketplace may have received.
The Federal Department of Health and Human Services (HHS) is about to release the first round of subsidy notices to companies. These notices will reflect the employees who will receive subsidies in 2016 and, in turn, could result in penalties against the employers. If you are an ALE and you strategized your company’s benefits contributions to avoid the penalties, you gave your employees the opportunity to purchase coverage that meets, if not exceeds, the affordability standards set by the ACA.
However, your employees may still have marketplace coverage if, for example, they:
Which companies should expect a subsidy notice?
If an employee has marketplace benefits coverage instead of benefits you offer, these employees may be receiving a subsidy on their premium, reducing the cost of their coverage. If your company is an ALE and any of your employees received subsidies, a subsidy notice may be on its way to you. This could leave your company vulnerable to large fines from the Internal Revenue Service (IRS). ALEs are generally those with 50 or more full-time employees during the prior calendar year.
If your company offered an affordable medical option, your company may want to appeal any employee benefits subsidies listed in a subsidy notice (more on filing an appeal is discussed below). Understand that in appealing the subsidy you are not accusing your employee of any wrong-doing. The regulations under the ACA can be confusing and it is doubtful your employee had any idea that keeping the subsidized marketplace coverage was an issue.
Communicating with employees about the ACA subsidy notice
If you receive a notice, you should consider how to communicate this to your employees. If your appeal is accepted – and it is successful - it will come with a consequence to your employee. Having received a subsidy to which they were not entitled (because the company offers affordable coverage), the IRS will expect the employee to repay the subsidy. Employees expecting to receiving a tax refund may find that they owe money when they file their tax return. Even if your company is not an ALE, your employees may have to repay the subsidy if you offered affordable coverage.
You will want to be prepared to address this potential issue with your employees. In addition to acknowledging that you understand there was no intent to cause an issue, it may be helpful to assure the employee that the situation does not affect the employment relationship. Further, you may remind the employee that when open enrollment comes around there will be another opportunity to obtain coverage through your company, thus avoiding the subsidy in the future.
If your employee is confused about the premium tax credit, it would be advisable to direct him/her to a tax professional who can offer guidance. There is also helpful information on healthcare.gov and the IRS website. It is unwise to provide personal tax advice to your employees.
All SMBs should be prepared for subsidy notices
If you are not considered an ALE, you may feel comfortable with the idea that you will not receive any notices or need to deal with this issue at all. Keep in mind that the guidelines to determine which employers have a “pay or play” responsibility are somewhat murky. Despite your belief that you are not required to comply with certain ACA regulations, government agencies may see things differently and want to know if employees receiving subsidies had access to affordable coverage. Be prepared to deal with subsidy notices so that you can proactively protect your company from penalties.
The process for appealing subsidy notices
If you receive a subsidy notice and decide to appeal, you will have 90 days to file an appeal. A subsidy notice will identify the employee(s) receiving the subsidy, indicate that you may be liable for an employer shared responsibility penalty and inform you of your right to appeal. To start, you will need to access the marketplace decision appeal instructions and required forms. Once you file your appeal, you should receive acknowledgement of the appeal. An explanation of the process will also be sent to you and your employee. Once the appeal is received, you should receive a response and a decision within 90 days.
TriNet stands ready to assist you with navigating the complicated world of Affordable Care Act compliance.
This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.
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