Small business employees with access to an employer-sponsored QSEHRA and who shop for individual insurance policies on the state or federal exchange can still qualify for government aid.
The available aid, otherwise known as premium tax credits, are based on income and insurance affordability.
The employee needs to take two steps to determine both their eligibility for the premium tax credit and the credit's size:
1. The employee must determine whether their QSEHRA monthly allowance qualifies as affordable coverage:
The employee must determine if the premium for self-only coverage through the second-lowest-cost silver plan offered on their local exchange minus the QSEHRA monthly allowance is less than 9.69% of their household income for the month.
For example, if the QSEHRA monthly allowance is $300 per month and the exchange premium is $500, then if $500 - $300 = $200 is less than or equal to 9.69% of the employee's monthly income, the QSEHRA allowance makes this coverage affordable and the employee doesn't qualify for a premium tax credit that month.
Another way to look at this example is that the employee would only qualify for premium tax credits if they were earning less than $2,064 per month because $2064 * 9.69% = $200 (which is the exchange premium minus the QSEHRA allowance).
2. The employee must adjust the amount of their tax credit to reflect their QSEHRA monthly allowance:
For example, if the employee is eligible for a $400 premium tax credit but receives the $300 allowance from their QSEHRA, they would be able to use only $100 of the tax credit.
The tax credit can be reduced to zero, but it can't go below zero.
The employee should request the adjusted tax credit from the exchange when purchasing their insurance policy.
Beginning with the 2017 tax year, employees that receive premium tax credits will need to report their QSEHRA allowance on IRS Form 8962 (a draft version of this form including instructions for providing the QSEHRA allowance can be found here: IRS Form 8962), therefore it is important that all employees with access to a QSEHRA in 2018 carefully calculate and report their adjusted premium tax credit during open enrollment in order to ensure that their are no significant tax impacts when completing their 2018 tax return.
If you have additional questions about the QSEHRA and premium tax credits contact a qualified tax advisor.