Apr 17, 2025
Employer Marketplace Subsidy Notices – Appeal or Not
Employers continue to receive notices from the public Marketplaces (i.e., Exchanges) indicating that one or more employees are currently receiving a subsidy when purchasing individual health insurance coverage through a public Marketplace, which could potentially trigger employer penalties under §4980H. If an employer receives such a notice for one of its employees, the employer has a right, but is not required, to appeal when they feel an employee should not be receiving a subsidy because the employer offers minimum-value, affordable coverage.
The employer does not have to appeal to avoid a penalty under §4980H.
Rather, any penalties will not apply until after the employer reporting (via Forms 1094-C and 1095-C) is reconciled with the IRS. Because some employers have struggled to successfully appeal subsidy eligibility determinations with the public Marketplaces, employers might choose instead to wait and reconcile any §4980H penalties directly with the IRS.
However, for those employers who choose not to appeal following receipt of a letter from a public Marketplace, it may still be beneficial to inform affected employees if there is reason to believe that they might not be eligible for the subsidy because of the medical coverage offered by the employer.
Background
The Affordable Care Act (ACA) requires all public Marketplaces to notify employers when an employee is receiving a subsidy (tax credits and cost-sharing reductions) for individual health insurance purchased through a public Marketplace and to provide an opportunity for employers to appeal. That being the case, we are aware of only a handful of states that actually send out such notices. Most often we see such notifications from Minnesota and Washington.
NOTE: These notices come from the Marketplaces and not from the IRS. The IRS has its own set of letters/notices used to enforce compliance with §4980H offer of coverage requirements (the “employer mandate”) and §6056 employer reporting requirements. IRS letters relating to proposed employer shared responsibility payments under §4980H come in the form of a Letter 226J and proposed §4980H penalties must be appealed directly to the IRS (not through a public Marketplace).
Should Employers Appeal the Marketplace Notices? Maybe not…
Small Employers (fewer than 50 FTEs)
Small employers have no penalty exposure under §4980H. The only reason such an employer may want to appeal would be in the interest of employee relations. The appeal could prevent an employee from incorrectly receiving a subsidy through a public Marketplace that might have to be paid back at the end of the year via the individual’s personal tax return. However, it may be easier simply to have a conversation directly with the employee suggesting they confirm their eligibility for a premium tax credit rather than working through the appeal process.
Applicable Large Employers (50 or more FTEs)
As mentioned above, a notice from the Marketplace does not mean the employer will owe a penalty payment under §4980H. Such penalties/payments are assessed by the IRS after reconciliation of the ACA employer reporting on Forms 1094-C and 1095-C. And if according to such reporting the IRS sends a Letter 226J proposing employer shared responsibility payment under §4980H, the employer will at that time have a chance to appeal directly with the IRS. That being said, an employer might choose to handle the appeal differently depending on whether a part-time or full-time employee is involved.
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