IRS Issues Guidance On ACA’s Employer Shared Responsibility Provisions

The Internal Revenue Service has issued guidance on the Patient Protection and Affordable Care Act’s (ACA) employer shared responsibility provisions in the form of 23 questions and answers. The employer shared responsibility provisions generally go into effect on Jan. 1, 2014. Employers will use information about the employees they employ during 2013 to determine whether they employ enough employees to be subject to these new provisions in 2014, the IRS explained.

Starting in 2014, employers employing at least a certain number of employees (generally 50 full-time employees and full-time equivalents) will be subject to the employer shared responsibility provisions under Code Sec. 4980H. If these employers do not offer affordable health coverage that provides a minimum level of coverage to their full-time employees, they may be subject to an employer shared responsibility payment if at least one of their full-time employees receives a premium tax credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges (Exchange).

Employers subject to the provisions. The guidance explained that to be subject to the employer shared responsibility provisions, an employer must employ at least 50 full-time employees or a combination of full-time and part-time employees that equals at least 50 (for example, 40 full-time employees employed 30 or more hours per week on average plus 20 half-time employees employed 15 hours per week on average are equivalent to 50 full-time employees). Employers will determine each year, based on their current number of employees, whether they will be considered a large employer for the next year. For example, if an employer has at least 50 full-time employees, (including full-time equivalents) for 2013, it will be considered a large employer for 2014.

Employers average their number of employees across the months in the year to see whether they meet the large employer threshold. The averaging can take account of fluctuations that many employers may experience in their work force across the year. For those employers that may be close to the 50 full-time employee (or equivalents) threshold and need to know what to do for 2014, special transition relief is available to help them count their employees in 2013.

Transition relief. Rather than being required to use the full 12 months of 2013 to measure whether it has 50 full-time employees (or an equivalent number of part-time and full-time employees), an employer may measure using any six-consecutive-month period in 2013, according to the IRS. For example, an employer could use the period from Jan. 1, 2013, through June 30, 2013, and then have six months to analyze the results, determine whether it needs to offer a plan, and, if so, choose and establish a plan.

Liability for payment. In 2014, if an employer meets the 50 full-time employee threshold, the employer generally will be liable for an employer shared responsibility payment only if:

(a) the employer does not offer health coverage or offers coverage to less than 95 percent of its full-time employees, and at least one of the full-time employees receives a premium tax credit to help pay for coverage on an Exchange; or

(b) the employer offers health coverage to at least 95 percent of its full-time employees, but at least one full-time employee receives a premium tax credit to help pay for coverage on an Exchange, which may occur because the employer did not offer coverage to that employee or because the coverage the employer offered that employee was either unaffordable to the employee or did not provide minimum value.

After 2014, the rule in paragraph (a) applies to employers that do not offer health coverage or that offer coverage to less than 95 percent of their full time employees and the dependents of those employees.

Affordable coverage. If an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5 percent of that employee’s annual household income, the coverage is not considered affordable for that employee, according to the guidance. If an employer offers multiple health care coverage options, the affordability test applies to the lowest-cost option available to the employee that also meets the minimum value requirement.

Minimum value. The IRS indicated that a minimum value calculator will be made available by the IRS and the Department of Health and Human Services (HHS). The minimum value calculator will work in a similar fashion to the actuarial value calculator that HHS is making available. Employers can input certain information about the plan, such as deductibles and copayments, into the calculator and get a determination as to whether the plan provides minimum value by covering at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan.

Calculation of the payment. In 2014, if an employer employs enough employees to be subject to the employer shared responsibility provisions and does not offer coverage during the calendar year to at least 95 percent of its full-time employees, it owes an employer shared responsibility payment equal to the number of full-time employees the employer employed for the year (minus 30) multiplied by $2,000, as long as at least one full-time employee receives the premium tax credit. (Note that for purposes of this calculation, a full-time employee does not include a full-time equivalent).

For an employer that offers coverage for some months but not others during the calendar year, the payment is computed separately for each month for which coverage was not offered. The amount of the payment for the month equals the number of full-time employees the employer employed for the month (minus up to 30) multiplied by 1/12 of $2,000. If the employer is related to other employers, the 30-employee exclusion is allocated among all the related employers. The payment for the calendar year is the sum of the monthly payments computed for each month for which coverage was not offered. After 2014, these rules apply to employers that do not offer coverage or that offer coverage to less than 95 percent of their full time employees and the dependents of those employees.

Notice of liability. The IRS will contact employers to inform them of their potential liability and provide them an opportunity to respond before any liability is assessed or notice and demand for payment is made, according to the guidance. The contact for a given calendar year will not occur until after employees’ individual tax returns are due for that year claiming premium tax credits and after the due date for employers that meet the 50 full-time employee (plus full-time equivalents) threshold to file the information returns identifying their full-time employees and describing the coverage that was offered (if any).

If it is determined that an employer is liable for an employer shared responsibility payment after the employer has responded to the initial IRS contact, the IRS will send a notice and demand for payment. That notice will instruct the employer on how to make the payment. Employers will not be required to include the employer shared responsibility payment on any tax return that they file.

Visit our News Library to read more news stories.