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The IRS recently issued proposed regulations on how the personal tax exemption reduction to “0” will affect qualifications for recipients of Premium Tax Credits (PTCs).
Regulation 124810-19, officially titled “Guidance Clarifying Premium Tax Credit Unaffected by Suspension of Personal Exemption Deduction” states that the change “does not affect an individual taxpayer’s ability to claim the premium tax credit.”
The proposed regulations also amends the definition of family to include “ the taxpayer, including both spouses in the case of a joint return (except for individuals who qualify as a dependent of another taxpayer under section 152), and any other individual for whom the taxpayer is allowed a personal exemption deduction.”
The IRS is currently accepting comments on the proposed regulations here.
Employers should note that these proposed regulations will not alter the way their employees receive a PTC, despite the change to their tax exemption statements, i.e. W-2, W-9.
The proposed changes come at a time where many Americans may be applying for government subsidized health coverage due to employment changes as a result of COVID-19.
A recent report from the Kaiser Family Foundation identified nearly 80% of Americans that lost their job due to COVID-19 may qualify for either Medicaid or a PTC through either a state or federal health exchange.
The Centers for Medicare and Medicaid Services (CMS) issued it’s 2021 Payment Notice, which confirmed the automatic re-enrollment for individuals receiving government subsidized health coverage.
The activity from these different agencies points to one thing; more premium tax credits being issued. And employers, with Premium Tax Credit requests on the rise, penalty assessments from the IRS for ACA non-compliance are likely to follow. PTCs are the trigger for the IRS issuing Letter 226J penalty notices to employers identified as having failed to comply with the ACA’s Employer Mandate for a specific tax year.
As a reminder to employers in conjunction with the Employer Shared Responsibility Payment (ESRP), the ACA’s Employer Mandate, Applicable Large Employers (ALEs) organizations with 50 or more full-time employees and full-time equivalent employees) are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to Internal Revenue Code (IRC) Section 4980H penalties.
The IRS is currently issuing Letter 226J penalty assessments for the 2017 tax year. With PTCs on the rise, employers should ensure their ACA compliance processes are tip-top. Contact us to see what ACA CompleteSM can do for your organization.