IRS updates guidance on employer shared responsibility, including 2018 penalty amounts
Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act
IRS has updated questions and answers (Q&As) on its website that provide guidance on employer responsibilities under Code Sec. 4980H.
Background. Code Sec. 4980H, which was added by the Affordable Care Act (ACA), provides that an applicable large employer (ALE; see below) is required to pay an assessable payment if it doesn’t offer health coverage to its full-time employees (generally, employees averaging at least 30 hours of service per week during a given month) and at least one full-time employee purchases coverage through the Marketplace and receives the Code Sec. 36B premium tax credit.Code Sec. 4980H is often referred to as the “employer shared responsibility”, or ESR, provision.
Under Code Sec. 36B(c)(2)(B), a coverage month for an individual (i.e., a month for which the premium tax credit is available) doesn’t include a month in which he or she is eligible for minimum essential coverage (MEC), other than coverage offered in the individual market. MEC may be government-sponsored coverage, such as Medicare or Medicaid, or certain employer-sponsored plans. An individual is eligible for employer-sponsored MEC only if certain requirements are met, including that the employee’s share of the premiums is “affordable”. Under Code Sec. 36B(c)(2)(C)(i), an employer-sponsored plan is not affordable if the employee’s required contribution with respect to the plan exceeds 9.5% (as annually adjusted after 2014) of his or her household income for the tax year.
An ALE for a calendar year is an employer that employed an average of at least 50 full-time employees on business days during the preceding calendar year. For purposes of determining whether an employer is an ALE, “full-time equivalent employees” (FTEs) are also taken into account. (Code Sec. 4980H(c)(2))
Code Sec. 4980H provides for two alternative types of assessable payment. An employer could potentially owe one (but not both) of these payments in any given calendar month, if the conditions described below are satisfied:
- Code Sec. 4980H(a) may apply if the employer fails to offer minimum essential health coverage to at least 95% of its full-time employees and one of its full-time employees receives the premium tax credit for coverage purchased through the Marketplace.
- Code Sec. 4980H(b) may apply if the employer does offer minimum essential health coverage that is affordable and provides minimum value to at least 95% of its full-time employees, but one or more full-time employees purchases coverage through the Marketplace and receives the premium tax credit.
Updated guidance. The updated Q&As provide:
- 2018 adjusted penalty amounts. IRS has announced the adjusted penalty amounts per full-time employee for Code Sec. 4980H failures occurring in the 2018 calendar year—$2,320 under Code Sec. 4980H(a) and $3,480 under Code Sec. 4980H(b). (Q&A-54)
- Adjustment to affordability standard. For 2018, for purposes of determining whether employer-sponsored health coverage is “affordable”, the threshold is 9.56%. (Q&A-39)
- Expired transition relief. IRS noted that no transition relief is available for 2017 and future years. Transition relief that was available for the 2015 plan year (including months falling in 2016 for non-calendar-year plans) has now expired. (Q&A-2)
References: For the excise tax imposed on large employers not offering affordable health insurance coverage, see FTC 2d/FIN ¶ H-1183 et seq.; United States Tax Reporter ¶ 49,80H4.
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