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Home ACA Reform Inflation Reduction Act Passes: IRS Enforcement Ramping Up

Inflation Reduction Act Passes: IRS Enforcement Ramping Up

3 minute read
by Robert Sheen

Following many months of debate, Biden signed the Inflation Reduction Act into law yesterday, marking a historic occasion for the future of U.S. healthcare, the environment, and tax enforcement.

Included in the $300 billion act are significant policy changes for improving climate change, reducing inflation, and increasing tax enforcement.

Healthcare changes under the Inflation Reduction Act

As we’ve previously written, the Act includes the necessary extension to the American Rescue Plan’s enhanced Premium Tax Credits (PTCs). Now that the law has passed, Americans will be able to maintain ACA subsidies obtained through state and federal health exchanges through December 31, 2025. Three more years of enhanced PTCs will guarantee continued ACA enrollment. 

The enhanced subsidies have already resulted in a record-breaking 14.5 million enrollees during last year’s open enrollment and a historical low uninsured rate of 8%. By expanding these PTCs through 2025, the average enrollee will save roughly $800 a year through the ACA exchange, according to the Congressional Budget Office estimate

With lower prices on the horizon for PTCs, we anticipate the uninsured rate to continue to drop.

HHS Secretary Becerra commented on the new all-time low uninsured rate saying, “We know that access to quality, affordable health care is key to healthier lives, economic security, and peace of mind… That’s why the Biden-Harris Administration has worked tirelessly to expand access to health insurance and lower costs for America’s families…”

As a reminder, the enhanced PTCs allow Americans with income up to 150% of the Federal Poverty Level (FPL) to obtain ACA coverage for monthly premiums as low as $0. Americans with income at 400% of the FPL and beyond also benefit from the enhanced PTCs. 

The Inflation Reduction Act also includes new healthcare changes, specifically relating to Medicare and the costs associated with prescription medicine. By 2025, most out-of-pocket medicare costs will be capped at $2,000. In addition, the Act gives Medicare the ability to negotiate prescription drug costs over the next six years.

What else is in the Inflation Reduction Act?

Employers should be wary of the other provisions included in the Inflation Reduction Act. In addition to a 15% corporate tax hike, the provisions also set aside $80 billion for IRS tax enforcement, including ACA non-compliance. What will the agency do with the extra funds? A number of things.

For one, the IRS is still clearing its historical backlog, so additional funding would assist in hiring more staff to prevent future backlogs. The agency has said it plans to hire roughly 87,000 new agents, in addition to making a number of enhancements, including:

  • Conducting more tax audits
  • Hiring more tax examiners
  • Updating its infrastructure for processing tax correspondence

More ACA penalties are on the way

When you couple increased tax enforcement from the IRS with more PTCs being issued over the next several years, you get a perfect storm for ACA penalties.

The reason? PTCs are the trigger for the IRS identifying ACA non-compliance. And with more PTCs being issued for the next three years, employers will need to verify their ACA compliance efforts and ensure offers of coverage are extended to eligible workers on time.

While the news healthcare components included in the Act are great for the general public, they pose ACA risk for Applicable Large Employers (ALEs) required to comply with the healthcare law’s Employer Mandate.

Under the ACA’s Employer Mandate, ALEs, or employers with 50 or more full-time employees and full-time equivalent employees must:

  • Offer Minimum Essential Coverage to at least 95% of their full-time employees (and their dependents) whereby such coverage meets the Minimum Value 
  • Ensure that the coverage for the full-time employee is affordable based on one of the IRS-approved methods for calculating affordability

The IRS is currently issuing Letter 226J penalty notices for the 2019 tax year but is anticipated to begin issuing them for the 2020 tax year soon. The agency has already begun issuing the warning notice Letter 5699 for the 2020 year.

Preparing for increased IRS tax enforcement

Employers should take action now to ensure their ACA compliance efforts are tight-knit. Enforcement is ever-increasing. If the increased budget and focus on tax enforcement aren’t convincing enough, recognize that the IRS recently began asking employers to provide their work in the recent batch of ACA penalty assessments. Details related to full-time and full-time equivalents are being sought out in ACA audits.

If you need assistance preparing your ACA compliance efforts, contact us to learn about ACA Complete. We’ve helped thousands of clients prevent over $1 billion in ACA penalties. Our full-service solution reduces the ACA workload on your staff and ensures you stay 100% ACA compliant.

Get your ACA Vitals score below to gauge your current efforts and better understand your IRS risk areas.

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For information on ACA penalty amounts, affordability percentages, important filing deadlines, steps for responding to penalty notices, and best practices for minimizing IRS penalty risk, download the ACA 101 Toolkit.

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