n-16-75.pdf

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Section 45R – 2016 Guidance with Respect to the Tax Credit for Employee Health
Insurance Expenses of Certain Small Employers

Notice 2016-75

I. PURPOSE
This notice provides guidance on section 45R of the Internal Revenue Code
(Code) for certain small employers that cannot offer a qualified health plan (QHP)
through the Small Business Health Options Program (SHOP) Exchange because the
employer’s principal business address is in a county in Wisconsin in which a QHP
through a SHOP Exchange will not be available for all or part of 2016 calendar year.
Section IV of this notice includes a list of those counties. With respect to those
employers in Wisconsin, this notice provides guidance on how to satisfy the
requirements for the section 45R credit for coverage provided during the 2016 calendar
year and the portion of a health plan year beginning in 2016, if any, that continues into
2017. (See Notice 2014-6, 2014 I.R.B. 279 and Notice 2015-08, 2015 I.R.B. 589 for
guidance on counties in other states in which a QHP through a SHOP Exchange might
not be available during 2014 and 2015.)
II. BACKGROUND
Section 45R was added to the Code by section 1421 of the Patient Protection
and Affordable Care Act, enacted March 23, 2010, Pub. L. No. 111-148. Section 45R
offers a tax credit to certain small employers that provide health insurance coverage to
their employees (eligible small employers). The credit generally is available for taxable
years beginning after December 31, 2009. For taxable years beginning after December
31, 2013, the credit is available only with respect to premiums paid by a small employer
for a QHP offered by the employer to its employees through a SHOP Exchange, and is

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available only for a period of two consecutive taxable years. Additionally, for taxable
years beginning after December 31, 2013, the maximum credit rate is increased to 50
percent from 35 percent for eligible small employers (and to 35 percent from 25 percent
for tax-exempt eligible small employers). An eligible small employer may claim the
credit by filing an income tax return and attaching Form 8941, “Credit for Small
Employer Health Insurance Premiums” (or in the case of tax-exempt eligible small
employers, filing Form 990-T, “Exempt Organization Business Income Tax Return,” and
attaching Form 8941).
The Treasury Department and the IRS issued final regulations under section 45R
on June 30, 2014 (79 FR 36640). The regulations provide guidance on determining
eligibility for the credit and calculating and claiming the credit.
The Treasury Department and the IRS have been advised by the Department of
Health and Human Services (HHS) that for calendar year 2016 the SHOP Exchanges
in Wisconsin will not have QHPs available in certain counties for employers to offer to
their employees. Under HHS regulations governing employer eligibility for SHOP
Exchanges, an employer may either (1) offer coverage to all of its eligible full-time
employees through the SHOP whose service area includes the employer’s principal
business address, or (2) offer coverage to each eligible full-time employee through the
SHOP whose service area includes that employee’s primary worksite. 45 CFR
155.710(b)(3). Under either approach, an employer may offer SHOP coverage to
employees whose primary worksite is at its principal business address only if that
address is located within the service area of the SHOP. As a result, absent the relief
provided in this notice, an otherwise eligible small employer with its principal business

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address in a county without any QHPs available would be denied the opportunity to
claim the section 45R credit for 2016. To provide these otherwise eligible small
employers an opportunity to claim the section 45R credit for 2016, this notice provides
relief for those employers for the plan year of the employer’s group health plan
beginning in 2016, including any portion of that plan year that continues into 2017, with
respect to employees whose primary worksite is at the employer’s principal business
address.
On December 17, 2013, the Treasury Department and the IRS issued Notice
2014-6, 2014-2 I.R.B. 279, which provided transition relief for employers in certain
counties in Washington and Wisconsin with no SHOP coverage available in 2014. On
January 16, 2015, Notice 2015-08, 2015-6 I.R.B. 589, was issued which provided
similar relief for employers in certain counties in Iowa with no SHOP coverage available
in 2015. The Treasury Department and the IRS have determined that similar relief,
described in section III of this notice, is appropriate for employers in certain counties in
Wisconsin with no SHOP coverage available in 2016. Nothing in this notice is intended
to modify or otherwise affect the relief provided in Notice 2014-6 or Notice 2015-08.
III. 2016 RELIEF
An eligible small employer with a principal business address in one of the
counties listed in section IV below may calculate the credit under section 45R by
treating health insurance coverage provided for the 2016 health plan year as qualifying
for the section 45R credit, provided that that the coverage would have qualified for a
credit under section 45R under the rules applicable before January 1, 2014. This
treatment applies with respect to the coverage provided during the 2016 calendar year

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and during any portion of a health plan year beginning in 2016 that continues into 2017.
If the eligible small employer claims the section 45R credit for the 2016 taxable year,
then the credit will be calculated at the 50 percent rate (35 percent for tax-exempt
eligible small employers) for the entire 2016 taxable year. If the eligible small employer
first claims the section 45R credit for the 2016 taxable year, the 2016 taxable year will
be the first year of the two-consecutive-taxable year credit period. If the eligible small
employer first claims the section 45R credit for the 2015 taxable year, then the 2016
taxable year will be the second year of the two-consecutive-taxable year credit period,
regardless of whether the eligible small employer takes advantage of the relief in this
notice regarding the credit for coverage provided under the rules applicable before
January 1, 2014.
The relief in this notice is illustrated by the following examples. The examples
assume that the employer is an eligible small employer that is not a tax-exempt
employer, and that its principal business address is in a county listed in this notice.
Example 1. (i) Facts. Employer does not claim the credit for coverage provided
for its 2015 taxable year. Employer has a 2016 health plan year and a 2016 taxable
year that both begin January 1, 2016, and end December 31, 2016. Employer provides
health insurance coverage from January 1, 2016, through December 31, 2016, that
would have qualified Employer for a credit under section 45R under the rules applicable
to taxable years beginning before January 1, 2014.

(ii) Conclusion. Employer may claim the credit at the 50 percent rate under
section 45R for coverage provided for the entire 2016 taxable year. If Employer claims
the credit for coverage provided for the 2016 taxable year, the 2016 taxable year is the
first year of its two-consecutive-taxable year credit period.

Example 2. (i) Facts. Employer does not claim the credit for coverage provided
for its 2015 taxable year. Employer has a 2016 taxable year that begins January 1,
2016, and ends December 31, 2016, and a 2016 health plan year that begins April 1,
2016, and ends March 31, 2017. From April 1, 2016 through December 31, 2016 (the
initial months of its plan year that begins April 1, 2016) and from January 1, 2017
through March 31, 2017, Employer provides coverage that would have qualified

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Employer for a credit under section 45R under the rules applicable to taxable years
beginning before January 1, 2014.

(ii) Conclusion. Employer may claim the credit at the 50 percent rate under
section 45R for coverage provided from April 1, 2016 through December 31, 2016.
Employer may also claim the credit under section 45R for coverage provided for its
2017 taxable year from January 1, 2017 through March 31, 2017 (in addition to any
credit under section 45R for which Employer is eligible based on coverage provided
from April 1 through December 31 of the 2017 taxable year).

Example 3. (i) Facts. Employer has a 2016 taxable year that begins January 1,
2016 and ends December 31, 2016, and a 2016 health plan year that begins May 1,
2016 and ends April 30, 2017. Employer provided coverage through a SHOP plan for
2015 and qualifies for, and claims, the credit for 2015. In 2016, Employer provides
coverage through a SHOP plan for January 2016. Beginning February 1 and through
April 30, 2016, Employer provides coverage with a policy for the remainder of the plan
year that would have qualified Employer for a credit under section 45R under the rules
applicable to taxable years beginning before January 1, 2014. From May 1, 2016,
through December 31, 2016 (the initial months of its plan year that begins May 1, 2016),
and from January 1, 2017, through April 30, 2017, Employer provides coverage that
would have qualified Employer for a credit under section 45R under the rules applicable
to taxable years beginning before January 1, 2014.

(ii) Conclusion. Employer may claim the credit at the 50 percent rate under
section 45R for coverage provided from January 1, 2016, through December 31, 2016.
Employer may not claim the credit under section 45R for coverage provided for its 2017
taxable year because its two-consecutive-taxable year period ends with 2016.

IV. LIST OF WISCONSIN COUNTIES

Pierce, Polk, St. Croix.

V. EFFECTIVE DATE

This notice is effective as of December 2, 2016 and applies to periods after
December 31, 2015.

DRAFTING INFORMATION

The principal author of this notice is Stephanie Caden of the Office of Division
Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further
information regarding this notice contact Stephanie Caden at (202) 317-5500 (not a toll-
free call).