Update on Various 2015 Affordable Care Act Tax Matters

U.S. Supreme Court Ruling Expected at the End of this Month

In March 2015, the Court heard the King v. Burwell case.  The plaintiffs argued that the IRS unlawfully extended the premium support tax credit to residents of states having a Federal individual health insurance exchange instead of a state-run exchange.  The plaintiffs argued that the language of the law limits the credit to only state-run exchanges.  Only 16 states run their own exchanges and six state run exchanges in partnership with the Federal government.  The credit pays for a substantial portion of the premium of health insurance policies purchased by low to middle income taxpayers from the exchange.  If the Court rules against the government, health insurance would once again become unaffordable to millions of taxpayers who would also be penalized for not having health insurance!  Furthermore, employers may escape the penalty for not offering affordable, minimum essential health insurance in those states having Federal exchanges.  Clearly, an adverse ruling to the government will have far reaching consequences!

Update:  On June 25, 2015, in a 6-3 vote, the U.S. Supreme Court upheld the availability of the premium credit for health insurance policies purchased on a Federal exchange.

Employer Reporting Requirements

Employers having 50 or more full-time equivalent employees (FTEs) during 2015 must report monthly health insurance information for 2015 for each full-time employee (those working on average 30 hours a week) on Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) and Form 1094-C (used to transmit Form 1095-C and also to claim transitional rules relief).  Form 1095-C must be provided to each full-time employee by February 1, 2016 and the forms must be filed with the IRS by February 29, 2016.  Applicable employers need to begin gearing up to meet these filing requirements.

Inflation Adjustments for 2015

The employer mandate penalties and the premium support credit eligibility figures are adjusted for inflation for 2015.

·       The penalty for not offering health insurance increases to $2,080 from $2,000.

·       The penalty for offering unaffordable health insurance increases to $3,120 from $3,000.

·       A premium credit for policies purchased on the exchange is available for those with household income of 100% to 400% of the federal poverty line:

o   Household income for a single person:  from $11,670 to $46,680 in 2015, up from $11,490 to $45,960 in 2014.

o   Household income for a family of four:  from $23,850 to $95,400 in 2015, up from $23,550 to $94,200 in 2014.

2015 Applicable Large Employer Mandate Transitional Relief

Employers with 50 to 99 FTEs in 2014.

·       There is no penalty for not offering health insurance to full-time employees if certain IRS mandated requirements are met:

o   The employer does not reduce the workforce count or reduce hours worked during the period of February 9, 2014 through December 31, 2014 to get under 100 FTEs, and

o   The employer does not reduce health insurance benefits during the period of February 9, 2014 through December 31, 2014.

·       These employers will be subject to the mandate beginning in 2016.

Employers with 100 or more FTEs in 2014.

·       The standard exemption of 30 used to calculate the penalty for not offering health insurance where an employee obtains a premium credit is increased to 80 for 2015 only.  For example, if the employer did not offer health insurance and there were 120 full-time employees, the penalty would be $83,360 [$2,084 X (120-80)] instead of $187,560 [$2,084 X (120-30)].

·       There is no penalty for not offering health insurance if at least 70% of its full-time employees are offered health insurance.  The percentage increases to 95% after 2015.

o   Even if this percentage is met, if the health insurance offered is not deemed “affordable” to the employee, or if the policy is not at least a “bronze-level” policy, the employer is subject to a $3,126 penalty for each full-time employee receiving a premium support credit.  This penalty cannot exceed what the penalty would be if no health insurance were offered.  A policy is deemed affordable if the employee’s portion of the premium does not exceed 9.56% of wages.

Individual Mandate Penalty

The individual mandate penalty increases.

·       The flat dollar penalty increases from $95 per adult (with a $285 household maximum) to $325 per adult (with a $975 household maximum).  For children under age 18, the penalty is 50% of the per-adult amount.

·       The penalty calculated as percentage of household income in excess of the tax return filing threshold increases from 1% to 2%.  This penalty applies if it is greater than the flat dollar penalty.

·       However, the maximum individual mandate penalty is limited to the national average bronze-level premium.  This average increases to $2,484 in 2015 from $2,448 in 2014 for an individual policy, and to $12,420 from $12,240 for a family policy covering five or more members.