Under the Affordable Care Act (ACA), Medicare-eligible individuals are ineligible to receive premium tax credits. As a result, employers with Medicare-eligible employees should consider how those employees may impact their potential liability under the ACA’s employer shared responsibility provisions (also known as “pay or play”).
Medicare-Eligible Employees and ‘Pay or Play’
As highlighted in an IRS memorandum, because Medicare-eligible individuals are ineligible to receive premium tax credits, applicable large employers (ALEs) that offer coverage to at least 95% of their full-time employees and their dependents will not owe a pay or play penalty for any Medicare-eligible individual. For ALEs that do not offer coverage to at least 95% of their full-time employees and their dependents, however, Medicare-eligible full-time employees could potentially trigger (or increase) the penalty owed.
For 2017, ALEs–generally those with at least 50 full-time employees, including full-time equivalent employees (FTEs), in the preceding calendar year–will be liable for a pay or play penalty only if:
- The ALE does not offer minimum essential coverage to at least 95% of its full-time employees and their dependents, and at least one full-time employee receives a premium tax credit. Under this scenario, the annual penalty amount is $2,260 per full-time employee, minus up to 30 full-time employees.
- The ALE offers minimum essential coverage to at least 95% of its full-time employees and their dependents, but at least one full-time employee receives a premium tax credit (either because the employer did not offer coverage to that employee or because the coverage the employer offered to that employee was unaffordable to the employee or did not provide minimum value). Under this scenario, the annual penalty amount is $3,390 per full-time employee that receives a premium tax credit.
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Please Note: The information and materials herein are provided for general information purposes only and are not intended to constitute legal or other advice or opinions on any specific matters and are not intended to replace the advice of a qualified attorney, plan provider or other professional advisor. This information has been taken from sources which we believe to be reliable, but there is no guarantee as to its accuracy. In accordance with IRS Circular 230, this communication is not intended or written to be used, and cannot be used as or considered a ‘covered opinion’ or other written tax advice and should not be relied upon for any purpose other than its intended purpose.
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