IRS gives employers a tip on ACA shared responsibility

The IRS released a Tax Tip to help employers understand the employer shared responsibility provisions that impact certain employers under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). The IRS advice is intended to help applicable large employers (ALEs)—those with an average of at least 50 full-time employees during the preceding calendar year—to understand the scope of the coverage they are required to provide employees under the ACA.

Shared responsibility. Employers designated as ALEs must offer employees (and their dependents) health care coverage that meets ACA standards of minimum essential coverage or make an employer shared responsibility payment to the IRS. Under the ACA’s employer shared responsibility provisions, an employer will be forced to make a payment to the IRS if the employer does not offer minimum essential coverage to at least 95 percent of its full-time employees (and their dependents) “and at least one full-time employee receives the premium tax credit for purchasing coverage through the Health Insurance Marketplace.”

Definitions. To avoid payment of such a penalty, an ALE must meet specific requirements that constitute an offer of “affordable minimum essential coverage that provides minimum value” to full-time employees and their dependents. The Tax Tip defines the following terms in order to help ALEs remain complaint with the ACA’s shared responsibility requirements:

Affordable coverage. “If the lowest cost self-only only health plan is 9.5 percent or less of your full-time employee’s household income then the coverage is considered affordable. Because you likely will not know your employee’s household income, for purposes of the employer shared responsibility provisions, you can determine whether you offered affordable coverage under various safe harbors based on information available to the employer.”

Minimum essential coverage. “For purposes of reporting by applicable large employers, minimum essential coverage means coverage under an employer-sponsored plan. It does not include fixed indemnity coverage, life insurance or dental or vision coverage.”

Minimum value coverage. “An employer-sponsored plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan.”

Calculating coverage. To determine if a plan with standard features provides minimum value, HHS guidance recommends that employers rely on a minimum value calculator developed by HHS. In the case of plans that have nonstandard features, the Tax Tip indicates that such plans must “obtain an actuarial certification for the nonstandard features.”

SOURCE: IRS Health Care Tax Tip, 2015-68, October 27, 2015.

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