March 28, 2014
On Feb. 10, the final regulations for the Employer Shared Responsibility provisions (also referred to as the “employer mandate”) under the Affordable Care Act were released by the Internal Revenue Service and Department of the Treasury.
These final regulations provide different types of safe harbors to employers in 2015, depending on the type of employer or plan offered. The triggers for the tax penalties also vary depending on the type and timing of the safe harbor option an employer may qualify for and choose to implement.
Applicable large employers with 50 to 99 full-time equivalent employees may not be subject to the employer mandate requirements until the first day of their 2016 plan year.
An applicable large employer is not subject to tax penalties for any calendar month in 2015 (and for the portion of the 2015 plan year that falls in 2016 if it has a non-calendar plan year) if it meets all three major requirements and certifies that it qualifies for this safe harbor:
1. An applicable large employer has at least 50 and no more than 99 full-time equivalent employees during 2014 so that it meets the workforce size requirements.
2. There are no reductions to an employer’s workforce size or overall hours of service between Feb. 9, 2014 and Dec. 31, 2014.
However, reductions made due to “bona fide” business reasons are allowed. The regulations provide examples of “bona fide” reasons that include changes in the economic marketplace, sales of business divisions or other similar reasons.
3. An applicable large employer must maintain the health coverage it previously offered between February 9, 2014 through Dec. 31, 2015 (or on the last day of the 2015 plan year).
An employer will certify its eligibility requirements on designated IRS forms (1095-C for self-funded large employers and 1094-C for fully insured large employers) by Jan. 31, 2016.
Percentage threshold to offer coverage is 70 percent for all applicable large employers
For all applicable large employers in 2015, including employers with 50 to 99 full-time equivalent employees that do not qualify for the safe harbor described earlier, the employer will be liable for tax penalties only if:
- The applicable large employer does not offer coverage to at least 70 percent of full-time employees and their, and at least one of the full-time employees receives a premium tax credit to help pay for coverage on a Marketplace (Exchange); or
- The applicable large employer offers coverage to at least 70 percent of full-time employees and their dependents, but at least one full-time employee still receives a premium tax credit to help pay for coverage on a marketplace because the employer did not offer coverage to that employee or because the coverage that was offered to that employee was either unaffordable to the employee or did not provide minimum value.
The percentage of employees that must be offered coverage to limit employer mandate liability increases from 70 to 95 percent in 2016.
Change in 2015 tax penalty calculation for employers with 100 or more full-time equivalent employees
An employer with 100 or more full time equivalent employees during 2015 is subject to the tax penalty in 2016 for not offering health coverage to at least 70 percent (will increase to 95 percent in 2016) of its full-time employees and their dependents. This means a tax penalty will be assessed if the employer (a) does not provide health coverage at all, or (b) the employer does not offer coverage to at least 70 percent of its full-time employees and at least one full-time employee receives a premium tax credit on the Marketplace.
For 2015, this tax penalty calculation is different. The tax penalty will be calculated by subtracting 80 full-time employees instead of 30:
- 2015: Annual penalty calculation is $2,000 x (number of full-time employees minus 80)
- 2016: Annual penalty calculation is $2,000 x (number of full-time employees minus 30)
Applicable large employers with non-calendar year plans
An applicable large employer may receive relief from tax penalties for any month prior to the first day of the 2015 plan year if it meets the following requirements:
- Maintained a non-calendar plan year as of Dec. 27, 2012 and not changed its plan year after this date to begin later.
- Meets one of the following three tests:
- Offers affordable coverage meeting minimum value requirements to its eligible employees (under the terms of the non-calendar plan as of Feb. 9, 2014) by the first day of the 2015 plan year
- Covered at least 25 percent of all employees on any date between Feb. 10, 2013 through Feb. 9, 2014, or offered coverage to at least 33 percent of all employees during the most recent open enrollment period ending before Feb. 9, 2014
- Covered at least 33 percent of its full-time employees as of any date between Feb. 10, 2013 through Feb. 9, 2014, or offered coverage to at least 50 percent of full-time employees during the most recent open enrollment period ending before Feb. 9, 2014
- Offers coverage to at least at least 70 percent of full-time employees and their dependents (unless the employer qualifies for the 2015 safe harbor for dependent coverage) as of the first day of the 2015 plan year.
Note that the relief does not apply to employees also eligible for or covered under a calendar year plan offered by the applicable large employer.
The Deerfield Team
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