IRS Releases Additional Guidance for Small Business Health Care Tax Credit
On April 27, 2018, the IRS published Notice 2018-27, which provides relief for certain small employers that wish to claim the Small Business Health Care Tax Credit (the Credit) for 2017 and later years.
As background, the Credit was created by the ACA under IRC Section 45R and provides relief to certain small employers that provide health insurance coverage to their employees. To qualify for the credit, the health insurance coverage must be a qualified health plan (QHP) purchased through the Small Business Health Options Program (SHOP) Marketplace, and employers may only claim the credit for two consecutive taxable years (the credit period).
The HHS advised the IRS that, for calendar years 2017 and 2018, SHOP exchanges in an increasing number of counties across the U.S. don’t have any QHPs available for otherwise eligible small employers to offer employees. However, because the Credit has been available since 2010, the relief provided in this Notice is more limited than in earlier years.
The relief within 2018-27 helps “eligible small employers” who first claimed the credit for all or part of 2016 (or claimed the credit for all or part of a later taxable year) for coverage offered through the SHOP Marketplace, but are unable to offer employees a QHP through a SHOP Marketplace plan for all or part of the remainder of the credit period because there aren’t any plans available in the county where the employer is located. Pursuant to this Notice, employers now have the ability to calculate the credit for the subsequent portion of the credit period by treating health insurance coverage provided for the portion of the remaining credit period as qualifying for the credit, as long as it would have qualified for the credit under the rules applicable before Jan. 1, 2014. The Notice provided five examples to illustrate when the relief will and won’t apply.
Notice 2018-27 also mentions that employers in Hawaii continue to be unable to claim the Credit for plan years beginning in calendar years 2017-2021. This is because Hawaii’s application for a 5-year state innovation waiver under ACA Section 1332 was approved in 2016 and, therefore, Hawaii isn’t required to operate a SHOP Marketplace. As background, ACA Section 1332 waivers allow a state to pursue innovative strategies for providing residents with access to high-quality, affordable health insurance while retaining the basic protections of the ACA. As such, any future Section 1332 waivers that allow a state not to be required to operate a SHOP Marketplace will supersede the relief provided in this Notice.
Please note that this Notice in no way modifies or otherwise affects the transitional relief provided in the earlier issued notices that provide similar transitional relief for 2014, 2015 and 2016.