Premium Tax Credit - Taxpayer Not Eligible

[peggysioux5]

Taxpayer had health insurance through employer; however, she called the Marketplace in January of 2015 to determine if she would be eligible for the PTC for 2015.  She told the representative what her income was (she is at the 150% FPL) and what she was currently paying for coverage through her employer and what the employer plan covered.  The representative set her up to receive the PTC so she dropped the employer coverage.   She brings in her tax documents for 2015 and during our interview I ask her what the cost of the premium had been through her employer and that cost was below the 9% of income so I ask her if the employer coverage did not cover the minimum value requirements.  She doesn't have a clue but told me she told the person through the Marketplace everything that the employer insurance covered.  She then asked me why the representative would set her up to receive the PTC if she did not qualify so she says she must have qualified.  So, I was hoping for input from other tax preparers.  As tax preparers, are we to assume the Marketplace representatives did their due diligence before offering the PTC to taxpayers?  Or are the tax preparers the only group that has to police the taxpayers and tell them they have to pay back the PTC for which they thought they qualified?

[Lion EA]

I've heard of taxpayers telling the marketplace their take-home pay instead of gross.  Or, failing to contact the marketplace with raises, changes in family size, moving, etc.  Yeah, we get to be the bearer of bad news, not to mention the time-consuming calculations to reconcile on the tax return and to reconcile to the client.

[jklcpa]

3 hours ago, peggysioux5 said:

Taxpayer had health insurance through employer; however, she called the Marketplace in January of 2015 to determine if she would be eligible for the PTC for 2015.  She told the representative what her income was (she is at the 150% FPL) and what she was currently paying for coverage through her employer and what the employer plan covered.  The representative set her up to receive the PTC so she dropped the employer coverage.   She brings in her tax documents for 2015 and during our interview I ask her what the cost of the premium had been through her employer and that cost was below the 9% of income so I ask her if the employer coverage did not cover the minimum value requirements.  She doesn't have a clue but told me she told the person through the Marketplace everything that the employer insurance covered.  She then asked me why the representative would set her up to receive the PTC if she did not qualify so she says she must have qualified.  So, I was hoping for input from other tax preparers.  As tax preparers, are we to assume the Marketplace representatives did their due diligence before offering the PTC to taxpayers?  Or are the tax preparers the only group that has to police the taxpayers and tell them they have to pay back the PTC for which they thought they qualified?

The test for affordability of MEC through an employer's plan is 9.56% of household income. The premium to be used is the lowest premium that the employer offers and must include all discounts such as for non-smokers. It isn't unusual for taxpayer to give the Marketplace incorrect information when determining eligibility. For example, the taxpayer may have given only wage information, but for purposes of determining eligibility for the PTC, household income is used.  For this test, household income is MAGI (AGI plus excluded foreign income, n/t soc sec and tier 1 RR benes, and  t/e interest) for the taxpayer and anyone else that is claimed as a dependent.

Is the taxpayer eligible to contribute to an IRA or HSA before 4/15/16 for the 2015 tax year that would lower the household income enough that the employer's premium would then exceed the 9.56% threshold and thereby qualify the person for the PTC?  If the person is able to do so and can come up with those funds, that would be preferential than to pay back the APTC because she gets to keep the funds in her name than paying the government. 

See items 5 through 10 on this page at the IRS site.

[peggysioux5]

Quote

 

The test for affordability of MEC through an employer's plan is 9.56% of household income. The premium to be used is the lowest premium that the employer offers and must include all discounts such as for non-smokers. It isn't unusual for taxpayer to give the Marketplace incorrect information when determining eligibility. For example, the taxpayer may have given only wage information, but for purposes of determining eligibility for the PTC, household income is used.  For this test, household income is MAGI (AGI plus excluded foreign income, n/t soc sec and tier 1 RR benes, and  t/e interest) for the taxpayer and anyone else that is claimed as a dependent.

Is the taxpayer eligible to contribute to an IRA or HSA before 4/15/16 for the 2015 tax year that would lower the household income enough that the employer's premium would then exceed the 9.56% threshold and thereby qualify the person for the PTC?  If the person is able to do so and can come up with those funds, that would be preferential than to pay back the APTC because she gets to keep the funds in her name than paying the government. 

See items 5 through 10 on this page at the IRS site.

 

The employee's income is not the issue - she gave the correct "household income" to determine her eligibility.  While the idea of contributing to an IRA is a very good idea; unfortunately, for this taxpayer, contributing to an IRA to bring down her income would not benefit her because the employee portion of premiums  would still pass the test for affordability. Taxpayer swears that she laid everything out to the Marketplace representative regarding the employer insurance and her income/household income (and I have dealt with this taxpayer for many years and believe what she is telling me -- which does not really matter) and the representative told her she was eligible for the PTC. I was hoping I was missing something or that if Marketplace representative deemed her eligible with all the required information then she was eligible.  I am unsure if the employer insurance meets the minimum value requirement.  Is there a good website that would help me determine if the employer insurance meets the minimum value requirement?

[Jack from Ohio]

I am not an insurance agent.  Have the taxpayer contact his employer and ask for documentation that the plan offered to him met MEC.  If the employer indicates that the plan did meet MEC specs, then the taxpayer is out of luck.  It is not likely that the plan did not meet MEC.  Obamacare regulations require that any employer provided plan be MEC compliant. 

The person at the marketplace has no possible way to determine if the plan offered by the employer is MEC compliant or not.  There is missing information in this story.

It is not our place to police the insurance part of the law.  I refuse to do so. 

[peggysioux5]

I have asked the taxpayer to request documentation from employer regarding MEC.  We will see what she receives.

[BulldogTom]

7 minutes ago, peggysioux5 said:

I have asked the taxpayer to request documentation from employer regarding MEC.  We will see what she receives.

I think you are seeking a miracle...if the employer is an ALE and they have to produce a 1095 for the employee, it will most definitely say it is MEC.  Otherwise, why would they produce the 1095?   If they are not an ALE, and they did not provide a policy with MEC, it will take a long time for the IRS to catch up to the employer.  This is one of the situations where the ACA is supposed to trigger an audit on the employer, when 1 employee gets a subsidy from the marketplace. 

Up to you how you handle it.  You can take the position that the policy is not MEC and therefore the employee is entitled to the premium subsidy.  It might stick, or the client might get a letter in a couple years after the IRS gets around to checking out the employer. 

Tough call for the client.

Tom
Newark, CA

[Lion EA]

What I saw a lot of in this area over the last two years is that insurance companies were canceling policies that were not MEC-compliant and selling more expensive compliant policies to employers (individuals, too). So there aren't many non-compliant policies out there, not in CT anyway.  Did she call the marketplace every time someone in her household got a raise?

I just saw three sets of 1095-As for my son and his wife:  one set for the beginning of 2016, a second set when she called with reduced working hours/income at the end of June, and a third when she called in October with an increased family size/birth of a baby.  Haven't prepped their joint return yet, but hope it reconciles.  At least she notified the marketplace like I told her to!

[peggysioux5]

This taxpayer works for a small company with fewer than 50 employees and has not received a raise in several years so income does not fluctuate.  I want to handle in a way that is most beneficial to my client but within the IRS guidelines and making sure I have done my due diligence.  It seems very unfair to taxpayer if insurance representative advises her that she is eligible and sets up the PTC and then at the end of the year find out that she is not.

[Pacun]

I read the whole thing and I still don't understand. Poster said that she was at the 150% of the poverty level. If yes, she qualifies for PTC. If I am not mistaken, whoever is under 400% of FPL qualifies.

If a representative asks me how much does your insurance cost at work, my answer would be $10K. If the representative takes that amount into consideration, it will be unaffordable unless I make more than 100K a year. If I failed to let the representative that I only pay $200 per month and that my employer pays the rest, the representative will get me insurance through the exchange. I am lost on both paragraphs? Thank you.

[jklcpa]

2 minutes ago, Pacun said:

I read the whole thing and I still don't understand. Poster said that she was at the 150% of the poverty level. If yes, she qualifies for PTC. If I am not mistaken, whoever is under 400% of FPL qualifies.

 

The person isn't eligible for the PTC because she had the ability to purchase MEC offered through her employer that falls within the range of affordability.  A person can't turn down that coverage and then have the gov't subsidize the premiums. Because of that, she was never eligible for the PTC. It doesn't matter that her income fell within the 100-400% of FPL.

[Pacun]

Thank you. I forgot that detail. I have that problem with cleaning people because they make little money and their insurance is very expensive. Most of them refuse their employer's insurance and go to the exchange or uninsured.

[BulldogTom]

I am wondering about the employer not being an ALE?  Does an employer with less than 50 FTE employees have to offer MEC policies?  If not, then maybe the client and the marketplace advisor are correct.   So if the client claims entitlement to the PTC, how would the IRS even be able to find out that it was or was not a MEC policy, or even if it is affordable,  if the employer is not an ALE and not subject to reporting requirements?

Just thinking out loud here. 

Tom
Newark, CA

[grmy2h]

From Pub 974........Determining affordability at the time of enrollment.   Your employer coverage is not considered affordable, if, when you enroll in a qualified health plan, the Marketplace determines that your share of the cost of your premiums for employer coverage will be more than 9.56% of what the Marketplace estimates will be your household income and therefore that you are eligible for APTC for coverage in the qualified health plan. Eligibility for employer coverage in this situation does not disqualify you from taking the PTC when you file your tax return, even if the actual cost of your coverage was not more than 9.56% of the household income on your return. However, you will be treated as eligible for affordable employer coverage based on the household income on your tax return if: 

• You did not provide current information to the Marketplace relating to your household income and the cost of your employer coverage during each annual re-enrollment period, or

• With reckless disregard for the truth you provided incorrect information to the Marketplace about your cost of premiums.