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How draft ACA tax regulations could affect your clients

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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.

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?

Employers may be able to give cash to some employees who opt out of coverage.

Employers may be able to give cash to some employees who opt out of coverage. (Image: Thinkstock)

2. Employers who want to give cash to employees who get health coverage through their spouses’ employers.

The IRS says it does not generally want to encourage employers to give cash to employees who opt out of accepting group health coverage.

But the IRS says it is looking for a way to let an employer give opt-out cash to employees who are likely to be getting coverage from their spouses’ employers. 

Related: Cleaning Up the Health Plan 

Money archery target

The IRS has had famous problems with consumers who give unrealistically low income projections to qualify for ACA premium tax credits, but it also has problems with consumers who give unrealistically high income projections. (Image: Thinkstock)

3. Individuals who make inaccurate income predictions.

Although some taxpayers have been including unrealistically low income projections in exchange plan applications to boost tax credit subsidy help, other taxpayers have been including unrealistically high income projections to meet the minimum income cut-off, officials say.

The IRS has been trying to be gentle with taxpayers who experience unexpected drops in income, but now, officials say, it wants to get tough about clawing back premium tax credits provided for taxpayers who appear to have “recklessly or intentionally” provided inaccurate information about how high their future income might be.

Related: H&R Block warns of PPACA tax filing danger


Appeal timing issues have created headaches for some ACA premium tax credit users. (Photo: Thinkstock)

4. Individuals who appeal ACA exchange premium tax credit eligibility determinations.

When an ACA exchange rejects an individual’s application for premium tax credits, the individual can file an appeal.

In some cases, resolving eligibility appeals has been taking so long that key premium payment deadlines have passed, officials say.

Officials say they want to clear up those conflicts by giving a taxpayer who wins an eligibility appeal up to 120 days after the decision has been made to pay the taxpayer’s share of the premium bill.

Related: Agency finds holes in an exchange program’s eligibility screening


The IRS has tried to resolve some of the questions that have plagued families that are slightly different from what ACA implementers had expected. (Photo: Thinkstock)

5. Complicated families. 

In some cases, officials say, people who are, technically, in two or more families may be covered by the same ACA exchange family policy.

In other cases, officials say, dependents who have had coverage through parents or others during a plan year may be out of the household by the time tax returns for that year are filed.

Officials have proposed a procedure that two or more families can use when reporting premium amounts for shared coverage to the IRS.

Officials have also proposed making the individual who filed the claim for a personal exemption deduction, not the person covered by the deduction, responsible for reconciling any premium tax premium underpayments or overpayments.


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