The landscape of the Affordable Care Act (ACA) has been witnessing significant shifts, particularly concerning subsidies and their implications. We’ve recently explored how IRS safe harbors for affordability help businesses avoid ACA penalties, discussed concerns arising as ACA subsidies change, and delved into how altering the poverty level could impact the ACA. Another area of concern we’ve examined is the potential increase in tax liability due to excess Premium Tax Credits (PTCs).
The ACA has consistently shaped the US healthcare landscape since its enactment. As with any significant legislation, though, it’s always subject to ongoing changes. HR professionals and Applicable Large Employers (ALEs) must understand these shifts, particularly concerning the Federal Poverty Level (FPL) and ACA subsidies.
Now, the lowest ever FPL could lead to increased PTCs and, subsequently, elevate ACA penalty risks for employers.
Lowest Ever FPL
The IRS has updated the applicable percentage table used to calculate an individual’s premium tax credit and required contribution percentage plan years beginning in calendar year 2024. For plan years beginning in 2024, the required contribution percentage under Code Sec. 36B is 8.39%.
This lowest ever FPL could lead to increased PTCs and elevate employers’ ACA penalty risks.
Overview of Dynamic ACA Landscape
The ACA was intended to enhance healthcare accessibility through subsidies funded by the federal government. These subsidies assist lower and middle-income individuals and families afford health insurance. However, the subsidy landscape continually evolves, posing questions about sustainability and implications for businesses. As ACA subsidies change, maintaining affordable health coverage for employees becomes crucial for employers to avoid penalties.
If an employee finds that the coverage offered by their employer isn’t affordable under ACA guidelines, and they qualify for a subsidy on the health insurance marketplace, the employer could face significant penalties.
As the IRS introduces safe harbors for affordability, businesses have some leeway to avoid ACA penalties. Safe harbors are designed to give employers clarity on what constitutes “affordable” coverage, reducing their potential risk of non-compliance.
Changing Federal Poverty Level and Effects
The FPL, a pivotal benchmark in the US, determines eligibility for various federal programs, including ACA subsidies. FPL changes impact program eligibility and Premium Tax Credits (PTCs). A lower FPL could increase the number of individuals qualifying for subsidies and receiving higher PTCs.
When the FPL shifts, it has a ripple effect on these programs. A decrease in the FPL could lead to a situation where more individuals qualify for subsidies. If more individuals qualify, it could potentially increase the Premium Tax Credits (PTCs) they receive.
For employers, these shifts can elevate ACA penalty risks. If more employees qualify for PTCs due to FPL changes and employer coverage isn’t ACA-compliant, penalties could follow.
Navigating Premium Tax Credits (PTCs)
The intricacies of PTCs can be a potential minefield for employers. When employees receive excess PTCs, it can lead to greater tax liabilities for them. But the implications don’t stop at the individual level. Employers can also face ACA penalties because the health coverage offered by the employer is deemed unaffordable or doesn’t provide minimum value.
Employers must understand the nuances of PTCs, how they’re calculated, and their potential implications. By doing so, they can better navigate the ACA landscape and mitigate risks associated with non-compliance.
Impact on Applicable Large Employer Taxpayers
Recent IRS updates, such as the Premium Tax Credit Table adjustment, affect large employers. The Code Sec. 36B-required contribution percentage, set at 8.39% for 2024, determines ACA-affordability. Unaffordable coverage can result in penalties if employees receive PTCs.
Large employers must align health plans with updated guidelines to evade potential ACA penalties.
Actionable Advice for Employers
In response to these changes, proactive measures are vital for employers, especially HR professionals and ALEs:
- Stay Informed by regularly monitoring IRS and US Treasury updates for timely compliance.
- Periodically assess health coverage to make sure ACA criteria are met.
- Navigate ACA complexities by consulting compliance professionals or tax experts.
Staying ahead of the curve and being informed can make a significant difference in ensuring compliance and mitigating risks associated with ACA penalties.
The evolving landscape of the Affordable Care Act, particularly with shifts in the FPL, underscores the importance for businesses to remain vigilant. With potential implications on ACA penalties looming, proactive measures are more crucial than ever. Contact our ACA experts today to understand your compliance requirements and how to navigate the ACA penalty risks.
