Form 8962 (Premium Tax Credit (PTC)) and Instructions
The IRS has released the 2017 version of Form 8962 along with updated instructions. Individual taxpayers attach Form 8962 to their federal tax returns to calculate and report a premium tax credit, and reconcile it with any advance payments of the credit. (As background, under the Affordable Care Act (ACA), some individuals may qualify for a premium tax credit for coverage purchased on an Exchange. Advance payments of the estimated credit allow individuals to lower their monthly premiums during the year, subject to year-end reconciliation with the allowable credit.) The 2017 Form 8962 instructions highlight two aspects of qualified small employer health reimbursement arrangements (QSEHRAs) explained in IRS Notice 2017-67 (see our Checkpoint article). QSEHRAs are a type of HRA that became available this year—they include strict eligibility rules, and can be offered only by non-applicable large employers (as defined in Code § 4980H) that do not offer group health plans.
Form W-2 Reporting for QSEHRAs. The instructions include a reminder that if an employee was covered under a QSEHRA, the employer will report the annual amount of permitted payments and reimbursements in box 12 of Form W-2 with Code FF. For 2017, the maximum reimbursement for an eligible employee under a QSEHRA is $4,950 for self-only coverage and $10,050 for family coverage (these amounts are indexed—see our Checkpoint article for 2018 maximums).
QSEHRA Affordability and Coordination With Premium Tax Credits. QSEHRA benefits that meet the definition of “affordable coverage”—which measures the extent to which the QSEHRA benefit would reduce an employee’s premium for the second-lowest-cost silver plan in the relevant individual health insurance market below 9.5% (as indexed) of the employee’s household income—may prevent covered individuals from receiving premium tax credits. The instructions reiterate that if the QSEHRA is considered affordable, no premium tax credit is allowed. If the QSEHRA is unaffordable, the individual must reduce the premium tax credit by the permitted benefit amount of the QSEHRA (the instructions state that the individual must write “QSEHRA” in the top margin on page 1 of the Form 8962 to explain this entry and avoid delay in the processing of the tax return).
EBIA Comment: Those involved with QSEHRAs should carefully study the comprehensive guidance in IRS Notice 2017-67. In addition to the items we’ve highlighted, the Notice covers a range of complex issues and potential traps that will be of interest to employers, advisors, employees, and employees’ personal tax return preparers. For more information, see EBIA’s Health Care Reform manual at Sections XXIX.F (“Premium Tax Credits for Lower-Income Individuals”) and XXXVI.B (“W-2 Reporting: Cost of Employer-Sponsored Health Coverage”). See also EBIA’s Consumer-Driven Health Care manual at Section XXVII (“Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs)”).
Contributing Editors: EBIA Staff.