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New Stimulus Plan Expands Tax Credit Eligibility, Employer Penalties

Accounting Support • Apr 15, 2021
The ARP has expanded Premium Tax Credit eligibility for Americans. As a result, employers might receive more ACA penalty assessments from the IRS.

President Biden signed the American Rescue Plan (ARP) into law, which includes provisions that will make ACA healthcare coverage more accessible to Americans. The $1.9 trillion ARP reduces significant barriers in obtaining healthcare through federal and state healthcare exchanges by:

  • Reducing premium costs
  • Making coverage more affordable for Americans

Changes to Premium Tax Credit (PTC) affordability thresholds apply to the 2020 and 2021 tax years, and it will go into effect on April 1, 2021.

Premium Tax Credit Changes For 2021 And 2022

  • For the 2021 and 2022 tax years, Americans can now qualify for PTC and overall subsidized healthcare with much more ease due to the expansion of income thresholds around the Federal Poverty Level (FPL).
  • According to the American Rescue Plan, Americans with income up to 150% of the FPL can now get silver quality health plans for $0 monthly premiums and reduced deductibles.
  • Americans earning higher incomes, 400% or above, are now eligible to receive subsidized healthcare. Previously, Americans with income above 400% of the FPL were not eligible for subsidized healthcare from a federal or state health exchange.

Income Contribution Percentage For Premium Tax Credit In 2021

Household Income (% of FPL) Affordable Care Act American Rescue Plan
100% to less than 133% 2.07% 0%
133% to less than 150% 3.10% to 4.14% 0%
150% to less than 200% 4.14% to 6.52% 0% to 2%
200% to less than 250% 6.52% to 8.33% 2% to 4%
250% to less than 300% 8.33% to 9.83% 4% to 6%
300% to less than 400% 9.83% 6% to 8.5%
400% and higher 8.5%

Top 4 Things To Know About American Rescue Plan

  1. According to CMS' ARP fact sheet, "Premiums after these new savings will decrease by an average of $50 per person monthly or $85 per policy monthly. Four out of five enrollees can find a plan for $10 or less/month after PTC, and over 50% can find a silver plan for $10 or less."
  2. The American Rescue Plan waives repayment of excess Premium Tax Credit that Americans might have received from a state or federal health exchange during 2020.
  3. The affordability threshold has been lowered for Americans who opt for health insurance on a health exchange. The American Rescue Plan has given new people the option to receive coverage, including those receiving unemployment benefits and COBRA recipients.
  4. For COBRA recipients, the American Rescue Plan enables temporary premium subsidies for 2021 under certain circumstances. Americans can receive 100% of the monthly subsidy paid for up to six months as long as they still qualify for COBRA.

What's The Impact Of Premium Tax Credit Changes For Employers?

Employers should be mindful of the recent changes to Premium Tax Credit (PTC). Because if one of your employees receives one, it can result in the IRS issuing your business an ACA penalty assessment for not complying with the healthcare law's Employer Mandate.

With more Americans qualifying for PTC on federal and state health exchanges, employers must ensure that their ACA compliance process is proficient. The Treasury Inspector General for Tax Administration released a report that 27.4% of PTC are improper payments.

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