The IRS has provided clarity with regard to what qualifies as an “intentional or reckless disregard of facts” by employees when it comes to seeking shelter under the employee Premium Tax Credit (PTC) safe harbor under Internal Revenue Code 1.36B-2(c)(3)(v)(A)(3). An exception to the safe harbor applies if said employee intentionally or recklessly disregards facts and information he/she furnishes when it comes to seeking a PTC.
Per the ACA, an employer must offer minimum essential coverage to at least 95% of full-time employees. Should such coverage from the employer be deemed unaffordable to an employee, the employee may be eligible for a PTC if they opt to purchase healthcare from an Exchange in the Health Insurance Marketplace.
To obtain a PTC, the employee must not have been offered minimum essential coverage from the employer or such coverage was not affordable and/or met minimum value. Further, those individuals whose income falls below certain levels, can enroll themselves onto Medicaid coverage and enroll their children onto CHIP through the Exchange. In either instance, correct information must be furnished to the Exchange.
The employee safe harbor is based on the Exchange determination. However, that safe harbor contains an exception for reckless disregard for the facts. Under the exception, the safe harbor does not apply in situations in which an Exchange determines that an individual is not eligible for affordable employer-sponsored coverage because an individual, with reckless disregard of the facts, provides incorrect information to the Exchange regarding affordability of the plan.
The final regulations adopt two specific “intentional or reckless disregard” exceptions to the safe harbor. First, individuals whose household income is below 100 percent of the applicable federal poverty level (FPL) who provided incorrect information to an Exchange for the year of coverage. Second, an individual who was determined or considered by an Exchange to be ineligible for Medicaid, CHIP, or a similar program provided incorrect information to an Exchange for the year of coverage.
This exception to the PTC safe harbor does not create new or heightened standards or rules for determining whether a taxpayer acted with intentional or reckless disregard for the facts. Rather, the phrase “intentional or reckless disregard for the facts” has a similar meaning and application currently used in other areas of the Internal Revenue Code.
Additions to these regulations will apply for tax years following December 31, 2016 and apply to that applicable year of coverage.