Employee Benefits Compliance, Exchanges, Marketplaces

Tax Credit Notices from Exchanges to Employers

tax credit notices

Some employers may have already received Tax Credit notices from the Exchanges/Health Insurance Marketplaces.  These are not the Exchange Notices that employers gave to all employees by October 1, 2013 and that employers continue to give all new-hires within 14 days of hire.

What are the Tax Notices?

These notices from the Exchanges will list the individuals who have received a premium tax credit to purchase health insurance in the Exchange and who reported the name of their employers. These notices are part of the Exchange verification process under section 1411 of the Affordable Care Act (ACA), for determining eligibility for premium tax credits and reduced cost-sharing and for exemption from the individual mandate tax.

Why are these Notices Sent?

If an Exchange determines that an applicant is eligible to receive an advanced premium tax credit or cost-sharing reduction, and that finding was based at least in part on a determination that the applicant’s employer did not provide minimum essential coverage, or provided coverage but it was not affordable or did not provide minimum value, the Exchange must notify the applicant’s employer and must identify the employee.  The final regulations (at 45 CFR 155.310(h)) require that the notices must:

  • identify the employee;
  • indicate that the employee has been determined eligible for advance payments of the premium tax credit;
  • notify the employer that if it has 50 or more full-time employees, it may be liable for a penalty under Code section 4980H (since increased to 100 employees for 2015 only); and
  • notify the employer of the right to appeal the determination.

Under the terms of the ACA, individuals are only eligible for tax credits if they do not have “minimum essential coverage” (MEC) available or are not offered affordable minimum value employer coverage (additionally, they must meet specified income and US residence requirements).  Thus, employees who have affordable employer coverage available should not qualify for subsidies to buy health insurance in the Exchange.  This applies also to individuals who have employer coverage available through a working family member, even if the cost of coverage for the non-employee does not meet the 9.5% affordability tests.

Why Do these Notices Matter to Employers?

In 2015, employers with at least 100 full-time employees or full-time equivalents are subject to “play-or-pay” penalties if at least one full-time employee receives a subsidy to buy insurance in an Exchange.

In 2016, this applies to employers with at least 50 full-time employees.  These notices from the Exchanges will alert employers that some of their employees have qualified for premium tax credits and the employer faces potential penalties. The regulations provide for a 90-day verification process in which the Exchange can review the initial eligibility determination and contact the employer to verify if the applicant is eligible for or enrolled in affordable employer coverage that provides minimum value. Thus, employers will want to respond to the Exchange if they did offer a particular employee coverage that was affordable and provided minimum value.

Indeed, experience has already shown the need for the verification process and the Exchange notices to employers. Shortly after the Exchange 2014 open enrollment period closed (in mid-April),  some full-time employees who had been offered affordable minimum value coverage asked to drop their employer coverage because they had been told by the Exchange they qualified for a subsidy.  Consequently, these employees were able to purchase less expensive coverage. This is exactly the reason that Employers will start reporting what they offer to their full-time employees and the Exchange will report who appeared to qualify for a subsidy in the Exchange.  Many Exchanges have already been notifying employers that employees have qualified for a subsidy, and the employer should respond to alert the Exchange that these employees are eligible for affordable minimum value coverage from the employer, and therefore not eligible for a tax credit.   Employers also may want to talk with employees, because employees who incorrectly receive tax credits should be required to repay all or part of the amount after the end of the tax year. (The lower an employee’s household income, as a % of the federal poverty level, the less the employee will have to repay.)

One additional note: in the situation above, employers are not required to allow employees to drop coverage. The fact that employees have affordable minimum value employer coverage available should make them ineligible for subsidized coverage through the Exchange, so allowing them to drop coverage would not help anyway. Nonetheless, IRS Notice 2014-55 allows employers who offer cafeteria plans to amend their plans to permit employees to revoke elections mid-year: 1) to enroll in Qualified Health Plans in the Exchange, or 2) if their hours are reduced to below 30 hours/week.

What Should Employers Do?

Employers should put procedures in place now to track and respond to these Exchange notices, especially large employers with multiple locations and full-time, part-time and variable hour employees. Employers are not required to respond to Exchange notices, but for many it will be in their best interest to respond if the notice is regarding a full-time employee who was offered coverage. Any responses must be made within the 90-day verification process time noted above. It is likely Exchanges will send notices to whatever employer address the employee provides on his or her application for Exchange coverage.  The Exchange will not know whether this is the employer headquarters or just a branch office.  Implementing procedures now (early 2015) may be especially critical for employers with numerous locations (e.g., restaurants, retail stores, hotels) and large single-site employers with full-time, part-time and variable hour employees (e.g., hospitals, manufacturing plants).  Employers should notify their local HR/Benefits representatives and also the Mailroom so they will be on the lookout for these notices and will send them to the corporate HR or Benefits Department.

Another step employers can take is to be sure and give the Exchange Notice (the one Employers are supposed to provide) to all new employees and include the address (on the Notice) to which you want the Exchange to send any communication.  Employers also might want to give this Exchange Notice again to terminated employees.  This does not guarantee the Exchange will see this Notice;   it is only if the employee brings it or inputs the information online (if the employee applies online) that the Exchange will see this Notice and get the correct employer address.

Additionally, employers might want to use the “Employer Coverage Tool” that is available on the HHS website. This tool allows applicants’ employers to provide information about the group health plan coverage they offer. Exchanges can access this information during the 90-day verification process to determine whether applicants for subsidized coverage are also eligible for employer-sponsored health coverage that is affordable and provides minimum value.


  1. Thank you for this article! Do you happen to have an example of what the Tax Credit notices from the Exchanges/Health Insurance Marketplaces will look like? We are trying to distribute this to our different locations so they know what to look for, but have not been able to find an example.

    Thank you!

    1. No, I do not have a sample. Many state exchanges have not sent any of these notices yet. I have seen a few samples from clients, but they have individuals’ names on them, so I cannot forward them. I did quickly google it, but did not find any samples there either. I haven’t even seen any of these notices from the federal exchange, although I think they must have created these notices and even sent out many of them.

      Thank you,
      Lisa Klinger, J.D.