ACA and the Inflation Reduction Act of 2022 Simplified

The Inflation Reduction Act was signed into law, which means that big changes are coming. Among those changes are increased IRS enforcement and the extension of ACA subsidies, or Premium Tax Credits.

Inflation Reduction Act

On August 16th, President Biden signed the Inflation Reduction Act of 2022 into law. It raises corporate taxes, makes large investments in combating climate change, and lowers the cost of prescription drugs among other things.

It includes several tax changes, including the following:

  • Increased IRS tax enforcement
  • Affordable Care Act (ACA) subsidy extension
  • New 15% corporate minimum tax rate
  • Climate Change Investments
  • Prescription drug price reform

Some key features to point out in the Inflation Reduction Act include the increased IRS enforcement and ACA subsidy extension. It ensures that Premium Tax Credits (PTCs) introduced through the American Rescue Plan remain through 2025.

Premium Tax Credits

The Premium Tax Credit (PTC) is a refundable credit that helps eligible individuals and families pay for their health insurance premiums that are purchased through the Health Insurance Marketplace. Individuals and families must meet certain requirements in order to be eligible.

The Inflation Reduction Act ensures that the PTCs introduced through the American Rescue Plan remain through calendar year 2025.

What’s this mean for Applicable Large Employers (ALEs)?

PTCs are a big indicator for ACA noncompliance to the IRS. If at least one of the ALE’s full-time employees receives a PTC, then they will likely see a penalty. This applies even if the ALE Member offers MEC to at least 95% of its full-time employees and their dependents.

If this is the case, then the employer will be liable for the second type of ESRP payment.

  • This annual ESRP payment is $3,000 (adjusted annually) for each full-time employee that receives a PTC.
  • To calculate the monthly ESRP payment, find the annual ESRP payment and divide by 12.

The extension on ACA subsidies, or PTCs, coupled with increased IRS tax enforcement through the Inflation Reduction Act could mean trouble for employers.

How to move forward?

Since PTCs indicate ACA noncompliance with the IRS, it’s important that employers ensure that they meet all of the requirements outlined by the ACA Employer Mandate.

This means that Applicable Large Employers (ALEs) must ensure that they are offering Minimum Essential Coverage (MEC) that meets Minimum Value (MV) to at least 95% of their full-time employees (and any applicable dependents). The coverage must be affordable using the IRS affordability methods.  

Conclusion

The increased IRS enforcement and extension of ACA subsidies (PTCs) due to the Inflation Reduction Act mean that ACA penalties will be on the rise. Therefore, employers must confirm that they are complying with the ACA Employer Mandate and ensure they are offering coverage to eligible employees in a timely manner.

The IRS is going to continue upping the enforcement of ACA provisions for timely filing and furnishing forms, so it’s important that employers stay up-to-date on all the latest ACA news. View our Essential Guide: Mastering Form 1095-C to learn more about Form 1095-C or download our Understanding Form 1095-C guide PDF.

BoomTax, The Boom Post, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to engaging in any transaction.

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