Understanding Employer Notices From Covered California and Similar PPACA Exchanges/Marketplaces

This is from Holland & Knight LLP:

For the first time, in 2016 some employers will receive a notice from a Marketplace indicating that one of their employees signed up for health coverage through the Marketplace and received advanced premium subsidies. ...

During the Marketplace application process, individuals are asked a host of questions, including questions about access to health coverage through an employer. If the Marketplace determines that the individual does not have access through an employer to coverage that is affordable and meets the required minimum value, and assuming the individual meets other eligibility criteria, advance payments of the premium tax credit can begin.

In such an instance, the Marketplace is required to send the employer a Marketplace notice. ...

Potential Tax Liabilities

The Marketplace notices will give employers advance warning that they may have potential tax liability under the employer mandate of the ACA. However, there are reasons that receiving a notice does not necessarily mean the IRS will be in hot pursuit, including:

• The Marketplace cannot distinguish whether the employer is large enough to be subject to the employer mandate....

• Even if the employer is an applicable large employer, the individual identified in the notice may not be a full-time employee. Determining whether a particular employee is a full-time employee, as defined by the law and related regulations, is not always easy. An employer receiving a Marketplace notice may want to confirm whether the individual identified in the notice is an employee and whether, in fact, the employee was, or is, a full-time employee.

In addition to considering its potential tax liability under the employer mandate, an employer should also be mindful of its employees' potential tax liability. As noted above, an individual with access through an employer to health coverage that is affordable and meets minimum value is not eligible for a premium tax credit. Consequently, any advance payments of the premium tax credit made on that individual's behalf throughout the year will be subject to repayment when the individual files their income tax return....

Sample Notice Clarifications 

The FFM [Federally Facilitated Marketplaces, i.e., about half of the states but not California] recently posted a sample of its 2016 notice. The sample notice contains language that requires clarification:

• First, it states, "Certain employers ... might have to pay an employer shared responsibility payment for any month that at least one full-time employee enrolled in Marketplace coverage and receives APTC [advanced payments of the premium tax credit] or CSRs [cost sharing reductions]." Whether or not there is tax due to the IRS is dependent on whether a full-time employee receives a premium tax credit – not, as the notice suggests, advance payment of the premium tax credit and cost-sharing reductions. There could be several reasons why an individual is determined eligible for advance payments of the premium tax credit by a Marketplace but is not eligible for the premium tax credit. This might happen for example, if the individual had higher-than-expected income.

• Second, the notice states, "Filing an appeal could also eliminate reports from the Marketplace to the IRS that your employee received APTC or CSRs following an appeal decision in your favor." Although the IRS receives reports from Marketplaces during the year indicating how much in advance payments were made on an individual's behalf, the notice is misleading to the extent that it implies the IRS will be notified of an employer appeal or the outcome of such an appeal.

• Finally, the notice suggests that employers should call the IRS for more information. While the IRS has an abundance of general information on its website, IRS telephone assistors will be unable to provide information on the Marketplace process, including the appeals process, and will be unable to tell an employer whether they owe a tax under the employer mandate.

Considerations for Employers 

An employer who receives a Marketplace notice may want to appeal the decision that the individual was not offered employer coverage that was affordable and of minimum value. An employer has 90 days from the date of the notice to file an appeal, which is made directly to the Marketplace. Importantly, the IRS will independently determine whether an employer has a tax liability, and the employer will have the opportunity to dispute any proposed liability with the IRS. Similarly, an individual will have the opportunity to challenge an IRS denial of premium tax credit eligibility. Any contact by the IRS, however, will occur late in the game after the year’s tax liabilities have already been incurred. Therefore, although an appeal is not required, it may be advisable. ...