In the King v. Burwell decision released on June 25, 2015, the Supreme Court upheld (6-3) the IRS’s application of the premium tax credit for individuals in states, like Pennsylvania, that have not established a state exchange, per the Affordable Care Act (“ACA”). For some employers, however, this decision may, at first blush, be jarring.
Here is why: The applicable ACA taxes to employers, including the taxes for both failing to offer health care and failing to offer affordable care, have as much to do with the employers’ offer of health care as they does with the premium tax credit. Although administered differently, the taxes applied for failing to offer coverage and failing to offer affordable coverage are not triggered until an employee receives the premium tax credit. So, if the premium tax credit is not available to employees, employers need not fret about taxation, regardless of whether they offer affordable coverage.
One way that an employee’s access to the credit may be divested is by the employee’s income. An individual with an income greater than 400% of the federal poverty limit does not qualify for the premium tax credit. However, particularly for the tax applicable when an employer fails to offer health care, this restriction is generally not helpful.
In King v. Burwell, it was argued that, under a plain meaning reading of the Affordable Care Act, only residents of states with their own state-established exchanges may be eligible for the premium tax credit, meaning that the ACA should not work in states with only federal exchanges. So, according to the Petitioner’s assertion in King v. Burwell, as long as states held out on establishing exchanges, the premium tax credit would be inaccessible to employees, meaning that employers could avoid most ACA-related taxes. The IRS, however, maintained that, read within context, individuals residing in states that offer only federal exchanges must be eligible for a tax credit, otherwise the purpose of the ACA would be defeated. Ultimately, the IRS prevailed.
Pennsylvania, like many other states, has not established its own exchanges and only offers federal exchanges. Because the IRS prevailed in King v. Burwell, notwithstanding Pennsylvania’s exclusive offering of federal exchanges, qualifying individuals will continue to receive the premium tax credit, the receipt of which triggers certain ACA tax obligations.
While some employers may fear the potential for financial loss following King v. Burwell, take heart: this opinion only maintains the status quo. As employers that survived a great recession, you know how to meet change with tenacity. So, even as employers move on from what may be lost hope, we encourage you to keep in mind that what was once new will one day be familiar.
The Eastern Pennsylvania Employment Log (EPELog) is a publication of the KingSpry Employment Law Practice Group. Jeffrey T. Tucker, Esquire, is our editor-in-chief. EPELog is meant to be informational and does not constitute legal advice.
