Final reg clarifies & relaxes certain premium tax credit reporting rules for Exchanges
Final reg clarifies & relaxes certain premium tax credit reporting rules for Exchanges
May 6, 2014
T.D. 9663, 05/05/2014; Reg. § 1.36B-5
IRS has issued a final reg on the information reporting requirements for Affordable Insurance Exchanges relating to the Code Sec. 36B health insurance premium tax credit. In general, the final reg adopts the proposed reg issued last summer, but it also provides a number of important clarifications as well as a rule that eases the reporting requirement for applicable benchmark plans.
Background. The Code Sec. 36B credit is designed to make health insurance affordable to individuals with modest incomes (i.e., between 100% and 400% of the federal poverty level) who are not eligible for other qualifying coverage, such as Medicare, or “affordable” employer-sponsored health insurance plans. Eligibility for other coverage is determined on a month-by-month basis. The credit applies for tax years ending after Dec. 31, 2013.
Under Code Sec. 36B and Reg. § 1.36B-2, in general, an individual (who may be the taxpayer claiming the premium tax credit or a member of the taxpayer’s family) may receive health insurance coverage subsidized by the premium tax credit only for months the individual is enrolled in a qualified health plan purchased through an Exchange and is not eligible for other minimum essential coverage, such as Medicare or Medicaid. (Code Sec. 5000A(f)(1)(A))
Here is how the Code Sec. 36B credit is designed to work:
- …An eligible individuals purchases affordable coverage through an Exchange that offers qualified health insurance plans.
- …The Exchange makes subsidy payments to the qualified health plan on behalf of the individual. The subsidy payments take the form of an advance credit payment under Code Sec. 36B (unless the individual chooses not to get the credit in advance). Using information available at the time of enrollment, the Exchange determines (1) whether the individual meets the income and other requirements for advance credit payments, and (2) the amount of the advance payments.
- …At tax return time, the eligible individual reconciles the actual credit for the tax year computed on his tax return with the amount of advance payments paid on his behalf. Special rules apply if the advance payments exceeded or were insufficient to cover the taxpayer’s actual credit amount.
Under Code Sec. 36B(f)(3), Exchanges must report to IRS and to taxpayers certain information relating to the computation and administration of the premium tax credit, including: (1) the level of coverage, (2) identifying information for the primary insured and each enrollee, (3) the amount of premiums and advance credit payments for the coverage, (4) information provided to the Exchange necessary to determine eligibility for and the amount of the credit, and (5) other information necessary to determine if a taxpayer has received the appropriate advance credit payments.
In May of 2012, IRS issued final regs, including Reg. § 1.36B-5, which identified the information that Exchanges must report to IRS and taxpayers, and stated that the time and manner for reporting this information would be provided at a later time. (See Weekly Alert ¶ 18 05/24/2012 for more details.)
In July of 2013, IRS issued Prop Reg § 1.36B-5, a proposed reliance reg (see Weekly Alert ¶ 29 07/03/2013).
New final reg. The final reg generally adopts the proposed reg, with a number of amendments explained below.
Individuals subject to exchange reporting. In general, an Exchange must report to IRS information required by Code Sec. 36B(f)(3) and the regs relating to individual market qualified health plans in which individuals enroll through the Exchange. (Reg. § 1.36B-5(a))
The final reg makes a number of clarifications, including:
- …use of the terms “tax filer” (instead of taxpayer) to identify the individual on behalf of whose families advance credit payments are made (Reg. § 1.36B-5(b)) and “responsible adult” to refer to an individual on behalf of whom advance payments of the premium tax credit are not made; and
- …distinguishing the various reporting categories (see “Information required to be reported,” below) based on whether or not advance credit payments are in fact made on behalf of an individual, rather than on whether an individual requests advance credit payments.
Information required to be reported. The final reg requires Exchanges to annually report information concerning all individuals enrolled in each qualified health plan, including: the name, address, and taxpayer identification numbers (TINs), or dates of birth (DOBs) if a TIN is not available, of the tax filer or responsible adult; the name and TIN (or DOB, if unavailable) of a tax filer’s spouse; the amount of advance credit payments paid for coverage under the plan each month; for plans for which advance credit payments are made, the premium (excluding the premium allocated to benefits in excess of essential health benefits) for the applicable benchmark plan (see below) for purposes of computing advance credit payments; except as otherwise provided, for plans for which advance credit payments are not made, the premium (subject to the same exclusion above) for the applicable benchmark plan that would apply to all individuals enrolled in the qualified health plan if advance credit payments were made for the coverage; the name and TIN (or DOB, if unavailable) and dates of coverage for each individual covered under the plan; the coverage start and end dates; the monthly premium for the plan in which the individuals enroll (with certain exclusions), and any other information specified by forms or instructions or in published guidance. (Reg. § 1.36B-5(c)(1))
In addition, for each calendar month, an Exchange must information report to IRS for each qualified plan, including: (i) for plans for which advance credit payments are made, the names and TINs (or DOBs, if unavailable) of the individuals enrolled in the qualified health plan who are expected to be the tax filer’s dependents, and certain employment information; the unique identifying number that the Exchange uses to report data that enables IRS to associate the data with the proper account from month to month; the issuer’s EIN; and any other information specified by forms or instructions or in public guidance. (Reg. § 1.36B-5(c)(2)) Exchanges also must report for each calendar month the name and TIN (or DOB, if unavailable) of each individual for whom the Exchange has granted an exemption from coverage, the months for which the exemption is in effect, and the exemption certificate number. (Reg. § 1.36B-5(c)(4))
The final reg requires exchanges to report the monthly premium for the applicable benchmark plan that applies to the coverage family (the members of the family enrolling and eligible for a premium tax credit subsidy) that is used to compute advance credit payments. If no advance credit payments are made, Exchanges may not determine which individuals enrolled would be part of the coverage family and the applicable benchmark premium that would apply to that coverage family. Nonetheless, the final reg requires reporting the benchmark premium that would apply if the coverage family included everyone covered under the plan because individuals for whom advance credit payments are not made may claim the premium tax credit on the tax return for the year of coverage and must know the premium for the applicable benchmark plan to compute the amount of the credit. However, as an alternative, Exchanges may provide a reasonable method for taxpayers to use to determine at the time of filing the tax return the premium for the applicable benchmark plan that applies to a coverage family. (Reg. § 1.36B-5(c)(4)(ii))
The final reg also clarifies that, when members of a tax household enroll in or receive minimum essential coverage exemptions from different Exchanges, an Exchange will report only information on enrollments and exemptions at that Exchange. In addition, the final reg clarifies that Exchanges will report the specified information for each family enrolled in a qualified health plan, whether receiving advance credit payments or not, including multiple families submitting a single application or enrolled in a single qualified health plan. (Reg. § 1.36B-5(c)(3))
Information reporting on the Small Business Health Options Program (SHOP) Exchange. IRS clarified that Code Sec. 36B(f)(3) and the new final reg do not require information reporting for taxpayers enrolling in health care coverage through a SHOP Exchange. However, under separate regs, SHOP Exchanges will report to IRS information concerning employer participation, employer contribution, and employee enrollment in a time and format that will be determined by the Department of Health and Human Services (HHS). (T.D. 9663)
Time for reporting. The final reg delays the date by which Exchanges will be required to submit their initial monthly report to IRS to no earlier than June 15, 2014. (Reg. § 1.36B-5(d)(2)(ii)) The actual initial monthly reporting date will be established by IRS in separate guidance. (T.D. 9663) The report must include cumulative information for enrollments for the period beginning Jan. 1, 2014, through the end of the month preceding the initial monthly reporting date.
In addition, the final reg sets out the procedures for correcting erroneous or outdated monthly-reported information in the next monthly report. (Reg. § 1.36B-5(d)(3))
Statements furnished to individuals. The final reg requires Exchanges to send statements (that include the information that the Exchange must annually report to IRS) only to the tax filer or responsible adult whom the Exchange identifies. (Reg. § 1.36B-5(f)(1)) The statement can be either a copy of the report filed with IRS or a substitute statement including such information. (Reg. § 1.36B-5(f)(2)) Where a child is enrolled in coverage, the tax filer or responsible adult identified by the Exchange is likely to be the individual who enrolled the child. A person claiming an individual as a dependent who is not identified as a tax filer or responsible adult will not receive a statement reporting the dependent’s coverage.
With respect to electronic delivery of statements to recipients, the final reg generally adopts the electronic statement procedures in the proposed reg, including that a recipient must affirmatively consent to receiving statements electronically. (Reg. § 1.36B-5(g)(2)(i)) However, IRS noted that the final reg doesn’t prohibit an Exchange from sending both paper and electronic statements to an individual. (T.D. 9663) The final reg also provides detailed rules and examples of, among other things, how consent is withdrawn (Reg. § 1.36B-5(g)(2)(ii)) and the procedures for when there is a change in the hardware or software required to access the statement. (Reg. § 1.36B-5(g)(2)(iii))
The statement must be furnished on or by January 31 of the year following the calendar year of coverage. If mailed, it must be mailed to the recipient’s last known permanent address or, if none is known, to the recipient’s temporary address. The final reg also includes a rule, similar to other information reporting requirements, that a first class mailing discharges the reporting entity’s obligation to furnish a statement. (Reg. § 1.36B-5(f)(3))
Effective/applicability date. The final reg applies to tax years ending after Dec. 31, 2013.