How draft ACA tax regulations could affect your clients

The Internal Revenue Service is preparing to post a batch of draft regulations that could answer questions for some Affordable Care Act premium tax credit users while creating obstacles for individuals and employers who were hoping to wiggle through ACA loopholes.

The draft regulations are set to appear in the Federal Register Friday. Comments will be due 60 days after the official publication date. 

Stephen Toomey is the principal author.

How the tax credit works

The premium tax credit program helps consumers pay for health plans purchased from an ACA public exchange. The tax credit is available to consumers with incomes ranging from 138 percent to 400 percent of the federal poverty level in states that offer Medicaid to childless adults, and from 100 percent to 400 percent of the federal poverty level in other states.

Most exchange users are supposed to buy health coverage for a benefit year during an enrollment period that lasts from Nov. 1 through Jan. 31. Typical consumers who want exchange coverage for 2017, for example, will have to buy their coverage by Jan. 31, 2017.

Consumers can choose between getting ACA tax credit subsidy help for 2017 in early 2018, when they file their 2017 income taxes, or getting the subsidy in advance. If a consumer chooses the advance payment option, the government will send tax credit help for 2017 to a taxpayer’s insurer in 2017, while the benefit year is under way, to reduce the amount the taxpayer has to spend each month on premiums. Most tax credit users choose the advance payment option.

Consumers who use the advance payment option for 2017 must estimate what their 2017 income will be later this year or in early 2017, when they apply for the 2017 coverage. Later, in early 2018, when they file their taxes for 2017, they are supposed to figure out whether they received too little tax credit help or too much.

Related: 3 ways the 8962 PPACA tax form update could drive your clients crazier

The IRS will send extra cash to taxpayers who received too little help and claw back some or all of the excess subsidy help from taxpayers who received too much help.

The possible impact of the draft regulations

Whether individual taxpayers qualify for ACA tax credits may also affect employers: Some employers may be on the hook for paying ACA “shared responsibility” penalties, but only if those employers’ workers qualify for ACA exchange plan premium tax credits.

The IRS is just starting to activate the programs that will determine which employers will pay the ACA shared responsibility penalties.

You may need to understand the draft regulations if you have clients who use the tax credit subsidy to pay for health coverage.

You may also need to understand the proposed regulations if you have employee benefits clients who are trying to avoid having to pay the penalties to be imposed on some employers that fail to offer full-time employees what the government classifies as solid health benefits.

For a look at five groups of clients who could be affected by the proposed ACA tax credit regulations, read on:

The IRS wants workers who sign up for “excepted benefit” plans to be eligible for ACA tax credits. (Photo: Thinkstock)

1. Employers that offer limited-benefit health insurance products.

The Affordable Care Act imposes a penalty on many individual taxpayers who fail to have what the government classifies as minimum essential coverage, or adequate health coverage.

The ACA also uses penalties to encourage what the government classifies as large employers to offer affordable coverage with a minimum value.

One part of the ACA classifies a worker as having minimum essential coverage, and, apparently, not having access to premium tax credits, if the worker enrolls in any employer-sponsored health plan, even if the plan is a limited-benefit health plan or some other type of “excepted benefits” plan that does not have to meet the ACA standards for major medical plans.

Some insurers and brokers have been offering employers “skinny plans,” as a cheap way to cut down on the number of employees who seek ACA exchange coverage, and reduce the risk that the employers will have to pay penalties.

IRS officials say in a preamble in the proposed regulations that, even though one part of the ACA classifies a worker who enrolls in any employer health plan as having access to minimum essential coverage, another part states that health coverage that consists solely of excepted benefits is not minimum essential coverage.

Under the proposed regulations, for purposes of determining eligibility for premium tax credit help, a worker will be considered eligible for minimum essential coverage only if the worker has access to an employer plan that provides minimum essential coverage, officials say.

“An individual enrolled in or offered a plan consisting solely of excepted benefits is not denied the premium tax credit by virtue of that excepted benefits offer or coverage,” officials say.

 Related: In PPACA World, what counts as real coverage?