Tax News Update    Email this document    Print this document  

August 16, 2022
2022-1238

Enactment of Inflation Reduction Act extends expanded premium tax credits under the Affordable Care Act

  • The newly enacted Inflation Reduction Act extends ACA premium tax credit subsidies for three more years.
  • Employers should adjust their systems for the new timeline.
  • Employers now have more certainty about ACA requirements through the end of 2025.

The enactment of the Inflation Reduction Act of 2022 (IRA) on August 16, 2022 resulted in sweeping changes to many climate, energy and healthcare provisions, including extending enhanced Affordable Care Act (ACA) subsidies through 2025.

Background

IRC Section 4980H, which was added by the ACA, imposes excise taxes (commonly known as the employer mandate penalty) on applicable large employers (ALEs) if their employees receive premium tax credits for purchasing their own health care coverage from one of the health care marketplace exchanges.

Premium tax credits generally are available to individuals if they do not have affordable coverage from their employer and their household income does not exceed 400% of the federal poverty limit. The excise tax is the "employer shared responsibility payment" (ESRP) for financing the health coverage of employees at income levels eligible for premium tax credits. The American Rescue Plan Act (ARPA) expanded the eligibility for premium tax credits to all income levels and provided that medical premiums for marketplace benchmark plans are capped at 8.5% of household income. This provision was supposed to expire at the end of the 2022 plan year.

The IRA extends the enhanced ACA subsidies established in the ARPA for three years — through 2025.

Implications

If an employer's lowest-cost plan premiums are not affordable, the employer may be liable for ESRP when full-time employees enroll in marketplace coverage and qualify for premium tax credits. With the expanded access and greater subsidies, more employees may enroll in marketplace coverage. Additionally, the expanded coverage, coupled with the "Family Glitch" provisions proposed to take effect in 2023, may make healthcare insurance available from the marketplace more attractive to employee dependents than coverage provided by employers (see Tax Alert 2022-0582). As a reminder, employers are not subject to ESRP if a dependent of an employee receives a premium tax credit.

———————————————

Contact Information
For additional information concerning this Alert, please contact:
 
Workforce Tax Services/Affordable Care Act
   • Lori Maite (lori.maite@ey.com)
   • Rebecca Truelove (rebecca.truelove@ey.com)
   • Belinda Sharp Cline (belinda.sharp@ey.com)
Compensation and Benefits Group
   • Christa Bierma (christa.bierma@ey.com)
   • Stephen Lagarde (stephen.lagarde@ey.com)
   • Rachael Walker (rachael.walker@ey.com)
   • Bing Luke (bing.luke@ey.com)
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 1996 – 2024, Ernst & Young LLP

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

EY US Tax News Update Master Agreement | EY Privacy Statement