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Compliance Corner


FAQ: If an employee is on a leave of absence, can they still contribute to a health FSA, dependent care FSA or HSA? Also, must employer HSA contributions continue during the leave period?

July 20, 2021

The handling of health FSA contributions while an employee is on a leave of absence depends upon the type of leave and the employer’s leave policies.

For FMLA leave, the employer must maintain the same group medical benefits, which include health FSA benefits, during the leave as if the employee was still working. So, the employee must be allowed to continue contributing to the health FSA for the leave period.

In such an event, arrangements should be made for the employee on FMLA leave to pay the health FSA contribution. The three options permitted are pre-payment (prior to the leave), pay-as-you-go (meaning at regular intervals during the leave, which would be post-tax for an unpaid leave) and catch-up (i.e., upon return from leave). The employer cannot offer pre-payment as the only option.

However, the employee is not required to make contributions during FMLA leave. If the employer requires the health FSA coverage to continue during the leave, the employee could cease contributions during the leave period (and then make catch-up contributions upon return). But an employer cannot require continuation of coverage during FMLA leave, unless also required for a non-FMLA leave of absence.

Alternatively, the employer could permit the employee to revoke the health FSA coverage during the leave (and be reinstated upon return). If the employee revokes the coverage, the employee is not entitled to reimbursement for health FSA claims incurred during the period the coverage was not in place.

USERRA also provides certain benefit rights for employees on a leave of absence for military service. Employees on USERRA leave must have the right to continue the health FSA coverage during the leave and are generally offered the same three payment options as those on FMLA leave (noted above). The employee may also be permitted to revoke coverage during the leave, subject to reinstatement upon return.

For other types of leave, the employer should review their cafeteria plan terms and leave policies to determine how the health FSA benefits should be addressed during the leave. These terms and policies should be clearly communicated and consistently applied to all similarly situated employees.

With respect to dependent care FSAs, an employer is not required to allow contributions to continue during the leave. The employee could be permitted to continue such contributions and, as with health FSA contributions, be offered the options of pre-payment, pay-as-you-go or catch-up contributions.

However, the employee may instead prefer to revoke or decrease the dependent care FSA contribution during the leave period because the employee will not have dependent care expenses that are eligible for reimbursement. Under IRS rules, dependent care expenses are generally only reimbursable if for the purpose of enabling the employee (or spouse) to be gainfully employed, (although there is an exception for short absences of two consecutive weeks or less). Additionally, the applicable qualifying event rules allow an employee to change a dependent care FSA election because of any change in daycare use, provider or cost. So, the employee should be made aware of the option to stop the contributions for the leave period (and make a new election upon return).

An HSA is not coverage under a group medical plan that must be continued during FMLA, USERRA or other types of leave. Rather, an HSA is a trust or custodial account owned by the employee. If permitted under the terms of the HSA program, an employee on a leave of absence may continue to contribute to the HSA, provided that the HDHP coverage is maintained during the leave period. If the leave is unpaid, the employee may prefer to cease HSA contributions for the leave period and then make a new election to resume HSA contributions upon return. Under a cafeteria plan, an employee must be permitted to change HSA elections at least monthly, for any reason. 

Employers are not required to make employer HSA contributions for employees on a leave of absence, even if the leave is protected leave (such as FMLA). So, an employer may discontinue employer HSA contributions for an employee on leave (with no catch-up upon return).  However, if the employer chooses to make HSA contributions for employees on non-protected leave, the contributions must be made for those on protected leave. The employer’s policy with respect to HSA contributions should be clearly defined in their leave policies and HSA program.

Accordingly, whether health FSA, dependent care FSA and HSA contributions continue during a leave period depends upon the type of leave, employer policy and, as applicable, options elected by the employee. Therefore, it is imperative that the employer’s cafeteria plan document, leave policies and other benefit materials clearly reflect how the health FSA, dependent care FSA and HSA contributions and benefits will be addressed during the leave period. This information should be clearly communicated to affected employees, so they are aware of their options and obligations for the leave period.

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FAQ: When do small health and welfare plans become subject to the Form 5500 filing requirement?

July 07, 2021

The annual Form 5500 filing must be filed by plan sponsors that are subject to ERISA, unless there is an exception. One such exception is the small plan exception that applies to small unfunded, fully insured or combination unfunded and fully insured health and welfare plans that cover fewer than 100 participants on the first day of the plan year. In other words, an employer only needs to file a Form 5500 for a given plan year if there were 100 or more participants on the first day of the plan year; exceeding that threshold mid-year is of no consequence until the following plan year. (For calendar year plans, the plan would have to have 100 participants on January 1 to be subject to the Form 5500 requirement for that year.)

Importantly, when counting participants for this purpose, employers must count all participants who are enrolled in the plan. Benefits that are wrapped together for plan document purposes (i.e., established with a single plan document) would need to have all distinct participants counted when determining whether the small plan exception applies. As an example of this, an employer with a wrapped plan consisting of medical, dental and vision benefits would need to file a Form 5500 if there were 75 medical participants, 40 dental participants (20 of whom are not on the medical plan), and 35 vision participants (10 of whom are not on the medical or dental plan); this is because the distinct participants in each group equal more than 100 participants in the wrapped plan (75+20+10=105).

Plan sponsors should work with their service providers to ensure their compliance with the Form 5500 annual filing requirements. Employers who have engaged in compliance failures with regards to the Form 5500 can explore the DOL’s delinquent filer voluntary compliance program.

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FAQ: Are employers required to collect attestation forms from individuals who are eligible for the ARPA COBRA premium assistance in order to apply for and obtain the tax credit?

June 22, 2021

Employers who seek a tax credit for providing the ARPA COBRA premium assistance must collect and maintain documentation to substantiate that the individuals who received the assistance are in fact eligible for it. This would include documentation confirming that the individual experienced a reduction in hours or involuntary termination as well as documentation confirming that they are not eligible for other group health plan coverage or Medicare.

The IRS’ guidance does not require employers to obtain a self-certification or attestation if the employer has other documentation to substantiate that the individual was eligible for the COBRA premium assistance. Examples of other documentation include employment records concerning a reduction in hours or involuntary termination of employment.

However, since individuals are only eligible for premium assistance if they are ineligible for other group health plan coverage or Medicare, employers will likely need to obtain an attestation from the individual reflecting that they do not have that access to such disqualifying coverage.

Ultimately, the attestation may be the easiest way to substantiate that the person receiving the premium assistance is eligible for it, but the employer may also rely upon their employment records to substantiate the individual’s status as an assistance-eligible individual.

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FAQ: What is a “minimum essential coverage” (MEC) plan? Can an applicable large employer offer an MEC plan to comply with the employer mandate?

June 08, 2021

Prior to January 1, 2019, all US taxpayers and dependents had to maintain a certain level of health insurance, minimum essential coverage (MEC), or pay a tax penalty. This was known as the "individual mandate" or "individual shared responsibility." There is no longer a penalty attached to the federal requirement for individuals to maintain MEC. However, several states have implemented a state version of the requirement.

An employer with 50 or more full-time employees, including equivalents (otherwise known as an “applicable large employer” or ALE), must comply with two conditions of an employer shared responsibility imposed by federal law. If an ALE fails to meet this "employer mandate," then it is at risk for two penalties. Each penalty corresponds with one of the two conditions of the employer mandate. Penalty A requires employers to offer MEC to at least 95% of full-time employees and their dependent children. This is one reason that it is important for employers to correctly identify employees versus independent contractors and full-time employees versus part-time employees. If they were to incorrectly classify more than 5% of their population and fail to offer coverage to those workers, the penalty is $2,700 (in 2021) times each full-time employee (minus the first 30 employees).

Penalty B requires employers to offer each full-time employee coverage meeting minimum value and affordability thresholds. Minimum value is a higher threshold than MEC. Minimum value must include hospitalization and prescription coverage. In contrast, MEC only needs to provide coverage for preventive care.

Affordability is measured by applying one of the three employer safe harbor tests to the employee's required monthly contribution for the lowest cost self-only coverage tier.

  • Rate of Pay: The employee's required contribution is 9.83% (2021) or less of the employee's monthly salary. If the employee is hourly, the contribution is 9.83% or less of the employee’s hourly rate times 130 hours (regardless of the number of hours worked). Importantly, an employer cannot use this method for tipped or commissioned employees.
  • Form W-2: The employee’s required contribution is 9.83% or less of the employee’s 2021 Box 1 earnings. Box 1 includes tips, wages, overtime, bonuses, commissions, etc., but does not include pre-tax retirement and health contributions.
  • Federal Poverty Level: The employee’s required contribution is 9.83% or less of the federal poverty level. The 2021 contribution threshold would be $104.52 or less per month.

An ALE must meet both Penalty A and Penalty B conditions to comply with the employer mandate. If it only offers MEC, any full-time employee who waives that coverage in favor of purchasing individual coverage in the exchange with a premium tax credit would trigger a penalty for the employer. Alternatively, if an employer offers an MEC along with a minimum value/affordable plan, both requirements would be met regardless of whether the employees waive coverage, enroll in the MEC or enroll in the richer minimum value plan.

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FAQ: What circumstances are considered “involuntary termination” for purposes of eligibility for COBRA premium assistance under ARPA?

May 25, 2021

An employer must use a facts and circumstances test in order to determine whether termination is involuntary for purposes of COBRA premium assistance eligibility under the American Rescue Plan Act of 2021(ARPA).

The ARPA provides premium assistance for qualified beneficiaries who elect continuation coverage through COBRA, including state continuation programs. To be an assistance eligible individual (AEI), a qualified beneficiary must have experienced a reduction of hours or an involuntary (i.e., employer-initiated) termination of their employment (other than by reason of such employee's gross misconduct) and must also not be eligible for other group health coverage or Medicare. This subsidy covers the entire cost of COBRA premiums and applies to COBRA premiums paid for coverage periods between April 1, 2021, and September 30, 2021 (or when the qualified beneficiary becomes eligible for other group medical or Medicare coverage, whichever date comes first).

On May 18, 2021, the IRS issued guidance related to COBRA premium assistance under the ARPA. This guidance defined involuntary termination as an employer’s unilateral decision to terminate employment when the employee is willing and able to continue performing services. As an example, IRS Notice 2021-31 explains that termination is involuntary, even if it is designated as voluntary, when the facts and circumstances indicate that the individual was willing and able to continue working and but for the voluntary termination, the employer would have terminated the individual (and the individual was aware that they would be terminated).

Since the ARPA was signed into law, how to determine if a termination was in fact involuntary remained unclear in certain circumstances. That said, the notice clarified that:

  • Voluntary termination due to general concerns about workplace safety, a health condition of the employee or a family member, or other similar issues generally will not be involuntary termination. This is because the actual reason for the termination is unrelated to the action or inaction of the employer.
  • Absence from work due to disability or illness is not an involuntary termination unless the employer takes action to terminate employment. However, this could be a reduction in hours that may give rise to premium assistance if the individual loses coverage as a result of the leave.
  • Involuntary termination includes when an individual voluntarily terminates employment due to being offered a severance agreement or imminent termination.
  • Generally, retirement is a voluntary termination except for when the facts and circumstances indicate that, absent retirement, the employer would have terminated the individual’s employment and the individual was aware that they would be terminated and was willing and able to continue working.
  • Employees who voluntarily terminated employment because they do not have childcare would not be AEIs. However, if such employees remain employed, take leave for that reason, and lose coverage this would be considered a reduction in hours that may make them AEIs.
  • Involuntary termination includes a situation where an employee voluntarily terminates employment because of the employer’s material change to the employment relationship such as a reduction in hours or change in geographic location of worksite.
  • An employer’s decision not to renew an employee’s contract is an involuntary termination only if the employee is willing and able to continue the employment relationship. However, if all parties always understood that the contract was for specified services over a set term and would not be extended, the completion of the contract without it being renewed is not an involuntary termination.

Not all terminations will fall neatly into the scenarios provided above. As mentioned, whether a termination is considered voluntary will ultimately depend on whether facts and circumstances show that the termination was the employer’s unilateral decision to terminate employment when the employee is willing and able to continue performing services. Clients may need to seek counsel to make such a determination.

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FAQ: Do individuals covered only under state healthcare continuation qualify for the ARPA premium assistance or a special election period?

May 11, 2021

The American Rescue Plan Act (ARPA) provides a 100% premium subsidy for COBRA premiums, including state continuation premiums, under certain circumstances. However, absent further guidance, individuals covered only by state healthcare continuation programs do not appear to have a special election period.

Under the ARPA, individuals are eligible for premium assistance if they were terminated from employment (except when terminated due to gross misconduct) or experienced a reduction in hours (either voluntary or involuntary). Voluntary terminations (e.g., resignations) do not qualify an individual for premium assistance.

The ARPA provides a special election period for qualified beneficiaries who are eligible for premium assistance, and who are currently in their maximum continuation coverage period but either failed to initially elect continuation coverage or dropped continuation coverage. However, recent DOL guidance explains that the ARPA does not change any requirements or time periods for election of state continuation.

We believe that this means that there is not a special enrollment opportunity where state continuation applies, so it is not necessary to look back to determine who would qualify for state health continuation right now but have not elected it. Since ARPA does not give state continuation individuals a special enrollment opportunity, employers just need to run a report on who was enrolled in state continuation on April 1, 2021, to determine the group that gets the ARPA subsidy for state continuation. You can find the DOL guidance here.

The DOL provides a model Alternative Notice for all qualified beneficiaries subject to state health continuation, not just covered employees. It is clear that this notice is intended for those who experience a qualifying event sometime between April 1 and September 30. We believe that this form would also be used for persons who are covered by state health continuation before April 1 and continue to be covered during the subsidy period. However, it does not appear to give persons who initially declined state health continuation coverage or who dropped it before the end of the coverage period an opportunity to elect that coverage (as discussed above).

The client may wish to consult with counsel or with the insurance carrier before sending anything to a person who initially declined state health continuation coverage or who dropped it before the end of the coverage period.

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FAQ: I heard “new” mental health parity requirements regarding non-quantitative treatment limitations (NQTLs) went into effect this year. What are NQTLs? How does a plan comply with the requirements?

April 27, 2021

The Consolidated Appropriations Act of 2021 (CAA) amended the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) by imposing new obligations on group health plans. These additional requirements went into effect on February 10, 2021.

Under the MHPAEA, financial requirements (e.g., deductibles and copayments) and treatment limitations imposed on mental health or substance use disorder (MH/SUD) benefits cannot be more restrictive than those applied to medical/surgical benefits. Nor can separate treatment limitations be imposed only on MH/SUD benefits.

The MHPAEA applies not only to quantitative treatment limitations (e.g., number of visits or days of coverage), but also to non-quantitative treatment limitations (NQTLs) that affect the scope and duration of treatment. NQTLS include, but are not limited to:

  • Medical management standards that limit or exclude benefits based on medical necessity
  • Experimental treatment exclusions
  • Prior authorization or ongoing authorization requirements
  • Step therapy protocols (e.g., requiring lower cost drugs to be prescribed before more expensive options)
  • Methods for determining usual, customary and reasonable charges for out-of-network (OON) services
  • Standards for providing access to OON providers
  • Standards for provider admission to participate in a network, including reimbursement rates
  • Restrictions based on geographic location, facility type or provider specialty

Since the MHPAEA’s enactment, plan sponsors have been required to review the plan’s written terms and operations to ensure that the processes and standards applied to NQTLs for MH/SUD benefits are comparable to those applied to medical/surgical benefits. The following are examples of NQTLS that would appear to be problematic:

  • MH/SUD pre-authorization requirements are stricter than those for medical/surgical benefits
  • Medical necessity criteria apply differently to MH/SUD services as compared to medical/surgical services
  • Concurrent review (i.e., review of the necessity of care while the patient is receiving treatment) or retrospective review (i.e., after treatment has been provided) occurs regularly for MH/SUD services but not for medical/surgical services
  • OON reimbursement rates for MH/SUD services are based upon lower percentages of usual, customary and reasonable charges than the percentages used to determine medical/surgical OON reimbursement rates

Under the CAA, plans must conduct and document their NQTL comparative analysis and be prepared to provide it to federal or state regulators upon request. Additionally, the written analysis must be made available to participants upon request. Amongst other items, the analysis must describe each NQTL, the plan benefits to which the NQTL applies, and the factors (e.g., high variability in cost of care, lack of clinical efficacy of a treatment) and sources (e.g., internal claims analysis, medical expert review) upon which the NQTL is based.

For example, a plan that imposes a concurrent review requirement on certain treatments might explain that the NQTL was applied because of a lack of medical literature to support the treatment’s effectiveness. In such case, the plan documents and records must also show that the requirement was applied consistently to both MH/SUD services and medical/surgical services.

Accordingly, plan sponsors should consult with their carriers and/or third-party administrators to ensure that the required NQTL comparative analysis has been completed and is available in written form.

To learn more about the MHPAEA requirements, please review our recent Compliance Corner article Federal Health Updates ( and register for our upcoming Get Wise Wednesday webinar on May 19, 2021.

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FAQ: How do the ARPA COBRA subsidies interact with the extension of certain timeframes relief?

April 13, 2021

While both types of relief could apply to an employee who has experienced a reduction in hours or involuntary termination, the application of the provisions differ.

The COBRA subsidies provided through the American Rescue Plan Act of 2021 (ARPA) allow certain individuals to elect COBRA coverage and have that COBRA coverage 100% subsidized by the federal government from April 1, 2021, to September 30, 2021. (We first discussed this provision in the March 16, 2021, edition of Compliance Corner.) The extension of certain timeframes for employee benefit plans, participants and beneficiaries required plans to disregard the period from March 1, 2020, until 60 days after the end of the National Emergency (known as the “Outbreak Period”) for certain deadlines, including the deadlines applicable to COBRA notices and payment. (We first discussed this provision in the May 12, 2020, edition of Compliance Corner.)

Employees who were due an offer of COBRA under the extensions of certain timeframes continue to have the opportunity to elect COBRA based on the date of their termination or reduction in hours. Specifically, the most recent guidance on this subject (which was discussed in the March 2, 2021, edition of Compliance Corner) indicated that the relief under these extensions will continue until the earlier of a) one year from the date an individual or plan is first eligible for relief or b) 60 days after the announced end of the national emergency (the end of the outbreak period). Since the national emergency has yet to end, some individuals will be entitled to this relief at the same time that they are entitled to elect COBRA under the ARPA.

There are a few distinctions to be made, though. First, the extensions of certain timeframes applies to all COBRA-qualified beneficiaries, while the ARPA COBRA subsidies only apply to those who were involuntarily terminated or experienced a reduction in hours. So while individuals whose COBRA was triggered by divorce, death or aging off of the plan continue to have an extended time period by which they can elect COBRA, they are not eligible for the COBRA election and subsidies provided by the ARPA.

Second, the election of COBRA under the two provisions takes effect differently. Under the ARPA, individuals who were involuntarily terminated or had their hours reduced going back as far as October 2019 may now elect COBRA (even if they waived it, or elected and dropped it before). As long as they are not eligible for Medicare or other group health plan coverage, the relief provided through ARPA will allow for them to elect that COBRA prospectively, and receive a subsidy from April 1, 2021, through September 30, 2021, as long as there are still months left in their 18-month COBRA maximum duration period.

On the other hand, individuals who are eligible for relief under the extension of certain timeframes could potentially elect COBRA, but would need to elect and pay for the coverage retroactively back to the date of their COBRA-triggering event. In other words, the relief provided under that guidance allows employers to require that the coverage be instated retroactively. Individuals who are eligible for this relief also can likely elect COBRA through the end of the outbreak period even if they are eligible for Medicare or other group health coverage.

Third, the DOL’s most recent guidance on the ARPA COBRA subsidies makes it clear that the extensions of timeframes guidance does not affect the COBRA notice requirements under the ARPA. As discussed in an article in this edition of Compliance Corner, employers only have until May 31, 2021, to notify assistance-eligible individuals (AEIs) of their right to elect COBRA and receive subsidies under the ARPA. That time is not extended by the extensions of timeframes. Likewise, AEIs only have 60 days to elect COBRA under the ARPA; if they do not do so, they waive their opportunity to elect COBRA and receive subsidies.

So while it is possible for both pieces of guidance to apply to certain individuals, their effect and application will be different. Consider the following example of an employee who was terminated in December 2020:

Amy was involuntarily terminated in December 2020 and would have the right to elect COBRA, effective beginning January 2021. She does not elect COBRA.

Under the extension of certain timeframes, Amy would have until the earlier of the end of the outbreak period or one year from the date she was first granted relief (January 2022) to elect COBRA. If she chose to do so, she would have to pay for COBRA going back to January 2021.

Under the ARPA, Amy should receive a notice from her previous employer by May 31, 2021, notifying her of the right to elect COBRA and receive a subsidy from April 1, 2021, through September 30, 2021. As long as Amy is not eligible for Medicare or other group health plan coverage, she could elect COBRA prospectively and receive 100% subsidized COBRA for the entirety of the subsidy period (since her COBRA maximum duration period would not be over until June 30, 2022).

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FAQ: What are the penalties if an employer failed to timely file or distribute Forms 1094/95 B&C? Is there an obligation to self-report the violation or is there an IRS-approved self-correction process?

March 30, 2021

If an employer missed the deadline by which they should’ve reported under Sections 6055 or 6056, they should follow the normal procedures for filing forms as outlined in the IRS Instructions for Forms 1094-B, 1095-B, 1094-C and 1095-C. Those instructions require employers to file Forms 1094/95-B&C with the IRS electronically via the IRS’s AIR filing system (if filing 250 or more forms) or by paper/mail to the IRS address in the Instructions (if filing fewer than 250 forms). In addition, employers must distribute a copy of Forms 1095-B or -C to their employees (as applicable) (See our reminder regarding IRC 6055 and 6056 Reporting Deadlines in this edition of Compliance Corner for more information on reporting requirements.) The employer would then just have to wait and see if the IRS will assess penalties for the late filings, as there is no requirement to self-report the violation.

As an example: employers should have already filed their 2020 forms with the IRS (by March 1, 2021, if filing by paper, and by March 31, 2021, if filing electronically), and should have distributed a copy of 1095-C to FT employees by March 2, 2021. Note that while there was relief that allowed an employer not to distribute Forms 1095-B to employees if they placed a notice on their website, there’s an argument that employers would not be able to avail themselves of that relief if they actually failed to file or even draft Forms 1095-B on a timely basis. If an employer missed those deadlines, the employer may be at risk for a penalty up to $280 per form for failure to distribute to FT employees, and an additional $280 per form for failure to timely file with the IRS (capped at $3,392,000 for 2021 filings). That said, since there is no obligation to self-report the untimely filing, the employer should not submit payment with filing. Rather, the employer would just file the forms (and distribute a copy of Forms 1095-B&C to employees, if applicable), and then the IRS has discretion in assessing penalties and will notify the employer if they are going to do so. The result would be the same for any missed filings from prior years.

Penalties may be waived if the failure was due to reasonable cause and not willful neglect. Note that special rules apply that increase the per-statement and total penalties if there is intentional disregard of the requirement to file the returns and furnish the required statements. Thus, if the employer has knowledge of their responsibility and delinquency, the employer should correct as soon as possible.

Although there is not an official self-correction program (like the Delinquent Filer Voluntary Correction Program for Forms 5500), there are two potential ways that a penalty could be reduced if the error is corrected within a certain period following the due dates. The first way is the “thirty-day rule:” if a failure is corrected within 30 days after the required filing date (or the deadline for furnishing individual statements), the penalty is reduced to $50 per return or statement, and the calendar-year cap is reduced to $565,000 ($197,500 for smaller entities) for filings made in 2021. The second way is the “August 1st rule:” if a failure is corrected after the 30-day rule described above but on or before August 1, the penalty is reduced to $110 per return or statement, and the calendar-year cap is reduced to $1,696,000 ($565,000 for smaller entities) for filings made in 2021. These rules may help for this year's filings (due in 2021) but would not apply to last year’s or any previous years’ filings, since they would be too late to take advantage of those exceptions.

Ultimately, employers who have failed to timely file and distribute these forms should likely consult with legal counsel. Counsel will be best suited to assist with filing delinquent forms and, potentially, negotiating with the IRS on any assessed penalties. The IRS Instructions are helpful in outlining the process and penalty information.

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FAQ: An employee heard that the eligibility for premium tax credits in the health insurance exchange has been expanded. Does that impact an applicable large employer's (ALE's) obligation to offer minimum value coverage meeting the affordability threshold?

March 16, 2021

While the eligibility criteria for premium tax credits (PTCs) was changed by the American Rescue Plan Act (ARPA), this does not change large employers' obligations under the employer mandate.

Prior to the ARPA, individuals were eligible for a PTC to purchase individual coverage through the exchange if these two conditions applied:

  • They had household income between 100% and 400% of federal poverty level (FPL).
  • They were not eligible for minimum value coverage from an employer where the self-only coverage cost 9.5% (adjusted annually) or less of household income.

Since an employer does not typically know an employee's household income, an ALE's responsibility under the ACA's employer mandate is to offer minimum value coverage to full-time employees and their children. The employee's required contribution for the employer's lowest cost option self-only coverage cannot be more than 9.5% (adjusted annually, and 9.83% in 2021) of the employee's earnings, as determined under one of the three affordability safe harbor options (FPL, rate of pay, Form W-2).

The ARPA made two changes to the PTC eligibility conditions for calendar year 2021. First, the 400% of federal poverty level maximum household income limit has been removed. In other words, U.S. taxpayers who have household incomes greater than 400% of FPL will now be eligible for a PTC. Second, individuals receiving unemployment compensation for any week in 2021 may receive a PTC even if they have income below 100% of FPL.

Importantly, if an individual is eligible for qualified coverage from an employer (meeting both the minimum value and affordability standards) they are not eligible for a PTC, regardless of income. Further, ALEs are still required to offer qualified coverage to full-time employees or be at risk of a penalty under the employer mandate. If a full-time employee who is eligible for qualified coverage from an employer purchases coverage in the exchange, they would not receive a PTC, would be required to pay the full premium in the exchange, and could not trigger a penalty for the ALE.

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