Wondering how premium tax credits work with ICHRA and QSEHRA? Take Command is here to help. We've covered the ICHRA and the QSEHRA in a bit more detail but today we'll compare the two side by side for you as they relate to premium tax credits.
Firstly, a quick refresher:
What is a Premium Tax Credit?
Premium tax credits (PTCs) are tax credits that help individuals and their families purchase health insurance coverage through the Exchange. The premium tax credit is not available to plans purchased outside of the Exchange. The credit is calculated from annual income and reduces the out of pocket expense for qualified individuals.
When individuals enroll in an Exchange plan, the Exchange will ask if the individual is offered any coverage through their employer. This includes coverage through the Individual Coverage HRA (ICHRA). Employees will be required to give notice to the Exchange of their ICHRA offering.
QSEHRA and Premium Tax Credits
For QSEHRAs, employers often find that their contributions are simply offsetting the PTCs their employees would receive anyway, dollar for dollar. In fact, almost 20% of employers who decided not to use QSEHRA cited the issue of PTCs as the reason.
In general, QSEHRAs reduce employees premium tax credits dollar for dollar. Basically the employee will be exchanging the tax benefit from the government with the tax benefit from the employer. The employee may still access their tax credits if the benefit is less than the premium tax credit (PTC) available to them.
ICHRA and Premium Tax Credits
Employees can choose to participate in ICHRA or receive a PTC. They cannot do both.
A nice feature of ICHRA is that employees have the option to participate in ICHRA or opt-out annually. This is different than QSEHRA, which does not allow employees to opt-out.
If the employee accepts the ICHRA they cannot claim any premium tax credits for the year for either themselves or any family members.
If the employee opts-out of the ICHRA for the year they may be able to claim premium tax credits, if they are eligible in the first place. The new step is to determine whether the ICHRA offered is deemed affordable or unaffordable for the employee. In cases where the employee has opted out of ICHRA and the HRA is considered unaffordable the employee is allowed to claim premium tax credits for themselves and dependents.
In cases where the employee has opted out of ICHRA and the coverage is deemed affordable the employee may not claim any premium tax credits for themselves or dependents.
Comparing QSEHRA and ICHRA and how they interact with Premium Tax Credits and Affordability
Here's a handy chart to help educate you on how different HRAs work with premium tax credits and affordability.
Wondering how to calculate affordability? We’re taking the guesswork out for you!
Our free affordability calculator allows employers to test out one employee at a time or upload a census file and get a full report. It shows results from the three main safe harbors: W-2 Wages, Rate of Pay, and the Federal Poverty Line. The calculator is available with complete data for 39 states and is adding additional states weekly.
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A wife to one and mother to four, Keely does all of the things. She’s also dabbled in personal finance blogging and social media management, contributed to MetroFamily magazine, and is passionate about good food, treasure hunting and upcycling. With a B.S. in Psychology from the University of Oklahoma and a knack for a witty punchline, it’s no surprise that Keely’s social posts are as clever as they get. In her (very little) free time, you’ll find Keely with her nose in a book or trying out a local restaurant with her family.