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Relief Provided for Certain Iowa Small Employers to Claim Code Sec. 45R Health Care Credit

IRS has provided relief under Code Sec. 45R for certain Iowa small employers that cannot offer a qualified health plan (QHP) through a Small Business Health Options Program (SHOP) Exchange because the employer’s principal business address is in a county in which no QHP through a SHOP Exchange will be available for all or part of the 2015 calendar year. In general, if the eligible small employer provides health coverage for the 2015 health plan year that would have qualified for a Code Sec. 45R credit under the rules applicable to pre-2014 tax years, then the employer may claim the credit. ( Notice 2015-8, 2015-6 IRB )

Background. Under Code Sec. 45R, which was added by the Affordable Care Act (ACA, P.L. 111-148), effective for tax years beginning after December 31, 2009, a tax credit is offered to certain small employers that provide health insurance to their employees (“eligible small employers,” or ESEs).

For tax years beginning after December 31, 2013, the credit is available only with respect to premiums paid by a small employer for a QHP offered by the employer to its employees through a SHOP Exchange, and is available only for a two-consecutive-tax-year period. Additionally, for tax years beginning after December 31, 2013, the maximum credit rate is increased to 50% from 35% for ESEs (and to 35% from 25% for tax-exempt ESEs). (Code Sec. 45R(b))

Issue. IRS has been advised by the Department of Health and Human Services (HHS) that for calendar year 2015, SHOP Exchanges in certain counties in Iowa will not have QHPs available for employers to offer to employees. Under HHS regs governing eligibility for SHOP Exchanges, an employer may either (1) offer coverage to all of its eligible employees through the SHOP whose service area includes the employer’s principal business address, or (2) offer coverage to each eligible employee through the SHOP whose service area includes that employee’s primary worksite. Under either approach, an employer may offer SHOP coverage to employees whose primary worksite is at its principal business address only if that address is located within the service area of the SHOP. As a result, absent IRS relief, an otherwise ESE with its principal business address in a county without any QHPs available would be denied the opportunity to claim the Code Sec. 45R credit for 2015.

To provide these otherwise eligible small employers an opportunity to claim the Code Sec. 45R credit for 2015, Notice 2015-8 provides relief for those employers for the plan year of the employer’s group health plan beginning in 2015, including any portion of that plan year that continues into 2016, with respect to employees whose primary worksite is at the employer’s principal business address.

In late December of 2013, IRS issued Notice 2014-6, 2014-2 IRB 279, which provided transition relief for employers in certain counties in Washington and Wisconsin with no SHOP coverage available in 2014 (see Pension and Benefits Week ¶  3  12/23/2013). IRS has determined that similar relief is appropriate for employers in certain counties in Iowa with no SHOP coverage available in 2015. Nothing in Notice 2015-8 is intended to modify or otherwise affect the relief provided in Notice 2014-6.

Code Sec. 45R relief. An ESE with a principal business address in one of the counties listed in Notice 2015-8, Sec. IV, may calculate the Code Sec. 45Rcredit by treating health insurance coverage provided for the 2015 health plan year as qualifying for the credit, provided that the coverage would have qualified for a credit under the rules applicable before January 1, 2014. This treatment applies with respect to the health plan year beginning in 2015, including any portion of that plan year that continues into 2016. If the ESE claims the Code Sec. 45R credit for the 2015 tax year, the credit will be calculated at the 50% rate (35% for tax-exempt ESEs) for the entire 2015 tax year, and the 2015 tax year will be the first year of the two-consecutive-tax-year credit period. And, if the ESE first claims the Code Sec. 45R credit for the 2014 tax year, then the 2015 tax year will be the second year of the two-consecutive-tax year credit period, regardless of whether the ESE takes advantage of the relief in this notice regarding the credit for coverage provided under the rules applicable before January 1, 2014.

Effective date. Notice 2015-8 is effective as of February 9, 2015, and applies to periods after December 31, 2014.

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