ACA ESRP "(b)" penalty

[Flyboyjohn]

Even when the ALE offered affordable coverage some full-time employees were able to get PTC/CSR subsidies and it's causing the IRS to propose the 4980H(b) ESRP against the ALE.

So I'm curious if we "prove" to IRS that our employee was not entitled to any subsidy because we offered affordable coverage will the IRS go back against the employee to recoup the subsidies?

If so the employer may decide to not fight the "b" penalty to avoid antagonizing the employee.

[kmhaab]

Interesting question. Lots of information is available on the IRS website about repayment of a subsidy due to an increase in income during the year, however I do not see anything on repayment due the employer having actually offered affordable coverage. 

However, IRS Publication 974 (Premium Tax Credit) states affordability is determined at the time of enrollment in marketplace plan by the Marketplace and that an individual is not disqualified from taking the premium tax credit (PTC) when filing his tax return even if his required contribution for coverage was not more than 9.69% of the household income, unless the individual 1) did not provide current income and premium information to the Marketplace, or 2) provided incorrect information with intentional or reckless disregard (see page 12).

My interpretation is that an employee making an honest mistake in whether he was offered affordable coverage or not will not need to repay any subsidies or tax credits, however that is only my interpretation. As such, the employee should only have to repay the subsidy if he presented fraudulent info, or didn't follow the directions to provide current info. In that case, why worry about upsetting the employee?  

Regardless, I would be very careful making a decision not to address the penalty, for several reasons.  It may be one employee this year, but what if it's 10 employees next year?  You will need to treat all employees in that situation the same.  And did you report an affordability safe harbor in your 1095-Cs that year? If so, I think you would want to be consistent.

Lastly, it's not so much that you are proving the employee was not entitled to the subsidy, but you are proving that you offered affordable coverage.  You're not antagonizing an employee by doing that. Whether the employee is ultimately eligible for a subsidy is between the employee and HHS/IRS.