On June 25, 2015, the U.S. Supreme Court upheld the tax credit provisions of the Affordable Care Act (ACA) by a vote of 6-3 in King v. Burwell, No. 14-114 (U.S. Sup. Ct., 6-25-15).
The question addressed by the top court was whether ACA's tax credits, which are intended to make health insurance more affordable, are available in states that have a federal exchange. The ACA's tax credit provisions are codified in IRC §36B. The IRS has published regulations making §36B tax credits available on both state and federal exchanges.
What are exchanges? For people who don't have or get health insurance through their employer, they need another way to buy insurance . The ACA creates an online marketplace, known as an exchange, in each state. However, many states have not created their own exchanges. In those states, the federal government has stepped in and created them instead. Currently, Washington D.C. and 16 states have their own exchanges. This means there are 34 states that use the federal exchanges.
The King v. Burwell court case arose when four individuals living in Virginia – which has no state exchange – challenged the IRS rule. The Supreme Court concluded that the tax credit scheme was meant to apply everywhere. It doesn't matter whether an exchange was created by a state or the federal government.
What does this mean for payroll? Simply put, this means employers will have to comply with all of the employer shared responsibility and reporting requirements coming up in 2015 and heading into 2016. There are no changes to those requirements. Forms 1094-C and 1095-C will be due to employees and/or the IRS early next year.
Read more about the Supreme Court's decision in Payroll Currently, Issue 7, coming out July 3. The APA will also present a two-part webinar series on what the ACA requires for 2015 on August 5 and 7, and available On Demand after that.