- IRS offers relief of penalties associated with excess advance premium credit
- Individual Shared Responsibility Provision
- Employers required to offer health plans or pay penalty
- Non-integrated health reimbursement arrangements are not considered to provide minimum essential coverage
The IRS has provided a procedure to help taxpayers avoid late payment penalties if they are unable to repay excess advance payments of the Affordable Care Act (ACA)'s premium credit for the 2014 tax year by the due date of their 2014 return. Taxpayers facing penalties for the underpayment of estimated taxes attributable to those excess payments can also get relief.
Taxpayers can qualify for these abatements if:
- They are otherwise current with their filing and payment obligations; and
- They report the amount of excess advance credit payments on their timely filed 2014 tax return, including extensions.
Taxpayers facing the late-payment penalty must also have a balance due for the 2014 tax year due to excess advance payments of the premium tax credit.
Taxpayers who are unable to repay the excess advance payments will receive a notice from the IRS in the mail. Taxpayers should write a letter to the address listed on the notice that contains the statement: “I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit.”
To request an abatement of the underpayment of estimated tax penalty, taxpayers should check box A in Part II of Form 2210, complete page 1 of the form, and include the form with their return along with this statement: “Received excess advance payment of the premium tax credit.” Taxpayers do not need to complete any of the form’s other pages or calculate the penalty amount.
Have you been wondering how the ACA will affect your 2014 tax return? For more than 100 million taxpayers the only additional step will be checking a box on Form 1040 indicating each member of their family had qualifying health coverage for the whole year. For those who had health coverage gaps or no coverage in 2014, however, it’s time to contact your tax professional.
For 2014, you may be exempt from the health coverage requirement if you meet certain criteria. Your tax professional can help you determine if you qualify for an exemption from the Individual Shared Responsibility provision.
It’s also important to correct the issue by enrolling in a qualifying health insurance program before the 2015 deadline. The open enrollment period for 2015 ends Feb. 15, and employers have until Feb. 2 to issue W-2s, so don’t wait until you receive your W-2 to talk with your tax professional or you could miss the deadline. The fee for not having health coverage is increasing from 1% of household income or $95 in 2014 to 2% of household income or $325 per person (maximum penalty per family is $975) in 2015.
Originally, applicable large employers were required to comply with the Patient Protection and Affordable Care Act (ACA) after Dec. 31, 2013, but the IRS has delayed the tax for all employers until this year, 2015. For employers with 100 or more full-time equivalent employees, affordable minimum essential coverage must be offered to at least 70% percent of full-time employees in 2015 in order to avoid a penalty. Mid-sized employers (50-99) have until Jan. 1, 2016, to comply with the employer mandate without facing any Section 4890H penalties.
An applicable large employer must determine whether to “pay or play” (i.e., whether to offer a plan or not). This article is not focused on a pay or play analysis; rather, it is centered on a different and distinct excise tax. This excise tax is assessed if any employer, whether required or not, offers a group plan that does not provide for minimum essential coverage. The excise tax is $100 per day per individual to whom the failure relates.
A common plan offered by employers is a health reimbursement arrangement (HRA). An HRA is an arrangement that is funded solely by an employer which reimburses an employee for medical care expenses. HRAs are generally considered to be group health plans under the Internal Revenue Code. An HRA on its own does not constitute minimum essential coverage under the ACA even if the HRA reimburses for outside plans that would normally constitute minimum essential coverage. An employer may, however, offer an HRA in combination with other coverage and satisfy the requirement to offer minimum essential coverage. This is known as an integrated HRA.
In order for an HRA to be integrated, it must only be available to employees who are covered by the primary group health plan that is provided by the employer and satisfies the annual dollar limit prohibition. A plan violates the annual dollar limit prohibition if the plan sets a maximum dollar amount allowed for covered benefits.
The IRS issued guidance in Notice 2013-54 that explains that an HRA cannot be used in conjunction with the individual marketplace to comply with the employer mandate. Since an HRA is considered a group health plan, this arrangement will run afoul of the annual dollar limit prohibition. Employers offering a group health plan must provide minimum essential coverage or the employer will be subject to an excise tax of $100 per day per individual to whom the failure relates.
Employers should seriously consider the consequences of failing to offer a group health plan that constitutes minimum essential coverage. Both small and large employers should confirm with their benefits advisor that the plan(s) offered provides minimum essential coverage. If an employer fails to offer a group health plan that encompasses all of the minimum essential coverage requirements, the employer is subject to an excise tax of $100 per day per individual to whom the failure relates. In other words, an employer can face a maximum of $36,500 each year per employee for failing to offer a compliant group health plan.
In addition to non-integrated HRAs, there are a plethora of other mandates that can trigger the $100 per day per individual to whom the failure relates:
If an employer offers a plan that is not complaint with these requirements, there may be steps that can be taken to avoid or reduce potential excise tax. Contact your KSM advisor to review your specific situation and determine any corrective actions that may need to be taken.
If you have any questions concerning how these updates affect your tax situation, please contact your KSM advisor.