IRS Issues Proposed Regulations On Employers’ Shared Responsibility For Health Coverage Under ACA

 

The Internal Revenue Service has released proposed regulations that provide guidance under Code Sec. 4980H with respect to an employer’s shared responsibility for employee health coverage under the Patient Protection and Affordable Care Act (ACA). Code Sec. 4980H is effective for months beginning after Dec. 31, 2013. The proposed regulations affect only “applicable large employers.” An applicable large employer is an employer that employed an average of at least 50 full-time employees on business days during the preceding calendar year. A full-time employee with respect to any month is an employee who is employed on average at least 30 hours of service per week.

For purposes of determining whether an employer is an applicable large employer, full-time equivalent employees (FTEs), which are statutorily determined based on the hours of service of employees who are not full-time employees, are taken into account. Under Code Sec. 4980H(b), liability for the shared responsibility payment is contingent on whether the employer offers minimum essential coverage under an eligible employer-sponsored plan, and whether that coverage is affordable and provides minimum value, as determined by reference to the cost and characteristics of employee-only coverage offered to the employee.

The proposed regulations are organized as follows:

• definitions (proposed Sec. 54.4980H-1);

• rules for determining status as an applicable large employer and applicable large employer member (proposed Sec. 54.4980H-2);

• rules for determining full-time employees (proposed Sec. 54.4980H-3);

• rules for determining assessable payments under Code Sec. 4980H(a) (proposed Sec. 54.4980H-4);

• rules for determining whether an employer is subject to assessable payments under section 4980H(b) (proposed Sec. 54.4980H-5); and

• rules relating to the administration and assessment of assessable payments under section 4980H (proposed Sec. 54.4980H-6).

Applicable large employer member. The proposed regulations provide that the term applicable large employer member means a person that, together with one or more other persons, is treated as a single employer that is an applicable large employer. For this purpose, if a person, together with one or more other persons, is treated as a single employer that is an applicable large employer on any day of a calendar month, that person is an applicable large employer member for that calendar month. If the applicable large employer comprises one person, that one person is the applicable large employer member. An applicable large employer member does not include a person that is not an employer or only an employer of employees with no hours of service for the calendar year.

Applicable large employer. An employer’s status as an applicable large employer for a calendar year is determined by taking the sum of the total number of full-time employees (including any seasonal workers) for each calendar month in the preceding calendar year and the total number of FTEs (including any seasonal workers) for each calendar month in the preceding calendar year, and dividing by 12. The result, if not a whole number, is then rounded to the next lowest whole number. If the result of this calculation is less than 50, the employer is not an applicable large employer for the current calendar year. If the result of this calculation is 50 or more, the employer is an applicable large employer for the current calendar year, unless the seasonal worker exception applies.

Full-time employees. For employees paid on an hourly basis, an employer must calculate actual hours of service from records of hours worked and hours for which payment is made or due. For employees paid on a non-hourly basis, an employer must calculate hours of service by using one of the following methods:

• using actual hours of service from records of hours worked and hours for which payment is made or due;

• using a days-worked equivalency whereby the employee is credited with eight hours of service for each day for which the employee would be required to be credited with at least one hour of service; or

• using a weeks-worked equivalency whereby the employee is credited with 40 hours of service for each week for which the employee would be required to be credited with at least one hour of service.

Seasonal workers. The proposed regulations provide that, solely for purposes of the seasonal worker exception in determining whether an employer is an applicable large employer, an employer may apply either a period of four calendar months (whether or not consecutive) or a period of 120 days (whether or not consecutive). Because the 120-day period referred to in Code Sec. 4980H(c)(2)(B)(ii) is not part of the definition of the term seasonal worker, an employee would not necessarily be precluded from being treated as a seasonal worker merely because the employee works, for example, on a seasonal basis for five consecutive months. In addition, the 120-day period referred to in Sec. 4980H(c)(2)(B)(ii) is relevant only for applying the seasonal worker exception for determining status as an applicable large employer, and is not relevant for determining whether an employee is a seasonal employee for purposes of the look-back measurement method (meaning that an employee who provides services for more than 120 days per year may nonetheless qualify as a seasonal employee).

The preamble indicates that the term seasonal worker, as incorporated in Code Sec. 4980H, is not limited to agricultural or retail workers. Until further guidance is issued, employers may apply a reasonable, good faith interpretation of the statutory definition of seasonal worker, including a reasonable good faith interpretation of the standard set forth under the DOL regulations at 29 CFR 500.20(s)(1).

Assessable payment. If an applicable large employer member fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan for any calendar month, and the applicable large employer member has received a “Section 1411 Certification” with respect to at least one full-time employee, an assessable payment is imposed. For the calendar month, the applicable large employer member will owe an assessable payment equal to the product of the Code Sec. 4980H(a) applicable payment amount and the number of full-time employees of the applicable large employer member.

The term “Section 1411 Certification” means the certification received as part of the process established by the Secretary of Health and Human Services under which an employee is certified to the employer under Section 1411 of the ACA as having enrolled for a calendar month in a qualified health plan with respect to which an applicable premium tax credit or cost-sharing reduction is allowed or paid with respect to the employee.

An applicable large employer member will not be treated as having made an offer of coverage to a full-time employee for a plan year if the employee does not have an effective opportunity to elect to enroll (or decline to enroll) in the coverage no less than once during the plan year. Whether an employee has an effective opportunity is determined based on all the relevant facts and circumstances, including adequacy of notice of the availability of the offer of coverage, the period of time during which acceptance of the offer of coverage may be made, and any other conditions on the offer.

Transition relief. Transition relief is being provided for members of applicable large employer members with fiscal year plans. If an applicable large employer member maintains a fiscal year plan as of Dec. 27, 2012, the relief applies with respect to employees of the applicable large employer member (whenever hired) who would be eligible for coverage, as of the first day of the first fiscal year of that plan that begins in 2014 (the 2014 plan year) under the eligibility terms of the plan as in effect on Dec. 27, 2012. If an employee described in the preceding sentence is offered affordable, minimum value coverage no later than the first day of the 2014 plan year, no Code Sec. 4980H assessable payment will be due with respect to that employee for the period prior to the first day of the 2014 plan year.

Reliance. An employer may rely on the proposed regulations for guidance pending the issuance of final regulations or other applicable guidance. Final regulations will be effective as of a date not earlier than the date the final regulations are published in the Federal Register. If and to the extent future guidance is more restrictive than the guidance in these proposed regulations, the future guidance will be applied without retroactive effect and employers will be provided with sufficient time to come into compliance with the final regulations.

Comments. Comments must be received by March 18, 2013, and may be submitted electronically to http://www.regulations.gov, or by mails to CC:PA:LPD:PR (REG-138006-12), Internal Revenue Service, Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044.

Visit our News Library to read more news stories.