What to do when a 1095-C is lying?

Question

I have a friend who does her grandmother's taxes. She is asking me for advice, so I am asking this forum.

Her grandmother is a full-time hourly W-2 employee who, based on her income, qualifies for a premium tax credit under the ACA. At the start of last year (2015), she asked her employer the minimum they would charge for health insurance, and she was told $600/month. She went to her state's Health Connector (state exchange) site, entered her income and her employer's $600/month number, and the site told her she qualified for a $300/month premium tax credit, making her out-of-pocket expense $400/month via the exchange. (That is, the employer's $600/month offer does not qualify as "affordable" under the ACA, so she is entitled to the subsidy on the exchange.)

So she took the subsidized insurance from the exchange and had coverage all of last year. She paid $400/month and the tax credit kicked in $300/month.

Now, here is the problem. Her employer has now sent her a 1095-C form with line 15 saying she was offered insurance, through the employer, for $300/month for all 12 months. Since this does qualify as "affordable", the tax preparation software says she received $3600 in tax credits to which she is not entitled, and now she owes $2500 of that with her 2015 return.

This $300/month offer never happened. (In fact, this company never made a written offer of insurance at all.) She has co-workers who received an identical 1095-C, and they confirm that no health insurance was offered at anything close to that rate.

Based on my own research, the ACA requires the employer to offer "affordable" insurance, and since they never did, they are subject to penalties. But my friend's grandmother is afraid to confront her employer, since she had difficulty finding this job and does not want to risk losing it, or having her hours reduced, or whatever.

The grandmother is actually a little angry, since it was my friend who convinced her to get health insurance in the first place. My friend is inclined simply to pay the $2500 herself.

My concern is that, by all appearances, the grandmother was attempting to defraud the government... And by not challenging this now, she could find herself in some kind of trouble in the future.

If you have read this far, thank you. What advice would you give my friend and her grandmother?

Answer 1

The 1095 isn't required to file taxes this year. A LOT of companies are struggling to even get them out, correct or not. It's very possible the form is simply an error. The employer penalties related to the 1095 have been waived this year as long as a reasonable attempt to furnish and file the form was made. Some companies are playing fast and loose to file something in order to check the "reasonable attempt" box.

The ACA does not "require" anything related to the employee cost of coverage. It specifies an upper cost guideline which triggers a nominal penalty if it's breached. Employers are free to charge what they want and definitely consider possible penalty exposure in the cost analysis. Even at $300 per month her modified adjusted gross income needs to be above $37,895 for the coverage to be affordable for her individual penalty purposes.

There are a few affordability safe harbors that an employer can choose to use to absolve itself of a penalty on the basis of affordability. The poverty line, rate of pay, and W2 safe harbors. Affordability at the individual employee level is determined by coverage actually costing more or less than 9.5% of the employee's actual income.

Does your grandma have any documentation of the cost of the offer she was made? Is your grandma actually a full time employee? It's important to remember that this is all still in the implementation phase and there is a lot of room to breathe. Your grandma doesn't seem to be defrauding anyone. The company may or may not be attempting to meet the current guideline of covering 70% of full-time employees by sending out dishonest 1095s. It's also possible that your grandma simply received that form by accident because basically every employer and every vendor in the space is having trouble wrestling with these new forms.