The Centers for Medicare & Medicaid Services (CMS) announced the rollout of the first step in a verification process for the Affordable Care Act’s (ACA) advanced premium tax credit. Employers will now have the opportunity to rebut an employee’s certification of eligibility for the tax credit by appealing to CMS and indicating the employee at issue was offered the required “qualified” and “affordable” coverage by the employer.
While such an appeal to CMS does not ultimately curtail the review and assertion of the ACA employer shared responsibility penalty by the Internal Revenue Service (IRS), response and appeal to CMS’ notifications by an employer can limit the scope of the IRS’ inquiry. (An employer is only responsible for the employer shared responsibility penalty if an employee is eligible for and receives a premium tax credit).
As background, in 2014, individuals were required to detail they were covered by minimum essential health care coverage or they would face a penalty. The ACA provided a framework for these individuals to receive an advanced premium tax credit to assist in obtaining the required medical coverage. The requirements for employers to provide coverage did not begin until 2015 and was delayed until 2016 for some mid-sized employers. To date, there has been no official confirmation or verification process by CMS to confirm individuals claiming receipt of the tax credit were in fact eligible. It should be noted, in most cases, individuals are ineligible for an advance premium tax credit if they are offered minimum essential coverage by their employer.
Upon receiving and confirming an appeal, CMS anticipates they will notify the individuals who wrongfully claimed eligibility for the tax credit to modify their applications to reflect the offer of coverage by the employer. This should result in the employee becoming ineligible for the tax credit for that calendar year (thereby limiting the IRS’ inquiry into the applicability of the employer-side penalty).
Because the premium tax credit is reported by an individual on their tax return (and, similarly, employer-side coverage reporting to the IRS is not completed until the calendar year following coverage), the IRS’ review will not necessarily begin until sometime after an individual receives the premium tax credit. Therefore, proactive response to CMS’ notification program during the calendar/coverage year should help alleviate unnecessary inquiry by the IRS for employees who were offered coverage with the employer but also attempted to obtain a premium tax credit.
CMS will being issuing these notices to employers in the spring of 2016. Only employers who have employees covered by a Federally Facilitated Marketplace will receive the CMS notice, but state-based exchanges may have their own notification program.