Affordable Care Act – Tax Code Changes

 

The Affordable Care Act (ACA) imposes a penalty on large employers that do not offer minimum essential coverage to full-time employees and their dependents. Large employers that offer this coverage may still be liable for a penalty if the coverage is unaffordable or does not provide minimum value. The ACA’s employer mandate provision is often referred to as the “employer shared responsibility” or “pay or play” rules.

On February 12, 2014, the IRS published long-awaited final regulations on this provision. Under the final regulations, applicable large employers that have fewer than 100 full-time employees generally will have until 2016 to comply with the pay or play rules. Applicable large employers with 100 or more full-time employees must comply starting in 2015.

The scenarios that trigger a tax penalty in 2015 are:

 

EXAMPLE

Employer does not offer coverage and at least one full-time employee receives a premium tax credit or cost-sharing reduction toward a marketplace plan.

PENALTY

$2,000 per full-time employee for the number of full-time employees over 80

Example: a group of 100 employees would pay (100 – 80) x $2,000 or $40,000

For employers offering coverage during some months of the year and not others, the penalty is equal to:

Total number of full-time employees for the month minus 80 x 1/12 x $2000.

 

EXAMPLE

Employer-sponsored plan does not meet the minimum value standard and is not affordable.

To meet MV, the plan must cover at least 60% of covered costs.

Affordable coverage is defined as:

  • Employees pay less than 9.5% of their household income for their contribution of the plan.

  • Employers that offer more than one health plan: The affordability test applies to the lowest-cost option available to the employee as long as that option meets minimum value.

PENALTY

Monthly and equal to the lessor of:

1/12 x $3000 x the number of full-time employees who received a premium tax credit for that month; or

Total number of full-time employees for the month, minus 80, x 1/12 x $2000.

 

EXAMPLE

Employer does not offer health coverage or offers coverage that does not the MV and affordability test but no employees get a premium tax credit or cost-sharing reduction toward a marketplace plan.

PENALTY

No penalty.