Q. I’ve heard that If I have access to an employer health plan but decline it and go through the exchange instead, I can’t get a premium subsidy. But how would the exchange or the IRS know whether I had access to an employer plan?
A. They will know—they are not leaving this to the honor system. There’s confusion about how this works, and some people may try to go around the law and get a subsidy even though they have access to an employer plan that provides minimum value and is considered affordable (meaning just the employee’s portion of the premium isn’t more than 9.56 percent of household income in 2018).
When you enroll through the exchange, the application asks if you have access to an affordable, minimum value, employer plan. It’s possible to provide a false answer and get a subsidy as a result.
But the IRS will catch that when your employer reports coverage offers on Form 1095-C. Employers use Form 1095-C to report whether coverage was offered, even if the coverage was declined (1095-C instructions here).
Overpaid premium subsidies must be paid back when recipients file their taxes. But if applicants lie to the exchange in order to receive a subsidy, it’s possible the IRS may view that as fraud, which could come with steeper penalties than just having to repay the subsidies.
Be honest when applying for subsidies. Doing otherwise will catch up with you at tax time.