16 Jan IRS Softens Affordable Care Act’s Penalty Provision

On January 2, 2013, the Internal Revenue Service published proposed regulations regarding one of the Affordable Care Act’s more controversial provisions–the Employer Shared Responsibility (penalty) provision. Under this provision, an employer may face an annual $2,000 or $3,000 penalty (tax) per qualifying employee depending on whether health coverage is offered to full-time employees.

Starting in 2014, a “large employer” may be subject to the Employer Shared Responsibility provision if:

• the employer does not offer health coverage to at least 95% of its full-time employees, and at least one of the full-time employees receives a premium tax credit for purchasing individual coverage on an Affordable Insurance Exchange, or
• the employer offers health coverage to at least 95% 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.

A full-time employ will typically be entitled to a premium tax credit if the employer did not offer coverage to that employee or if the employer’s coverage was either unaffordable to the employee or did not provide minimum value.

A “large employer” under the Employer Shared Responsibility provision employs:

• at least 50 full-time (30 hours per week) employees, or
• a combination of full-time and part-time employees that equals at least 50 full-time employees. For example, 40 full-time employees plus 20 part-time employees working15 hours per week are equivalent to 50 full-time employees.

The number of employees in a given year will be used to determine whether an employer will be considered a large employer for the next year. In other words, if an employer has 50 full-time employees in 2013, it will be considered a large employer for 2014.

Significantly, the proposed regulations give large employers a welcome margin of error. Citing the lack of flexibility or margin for error, the proposed IRS regulations provide that the penalty will not apply if large employers offer coverage to at least 95% of their full-time employees. Note that after 2014, the 95% requirement will apply to full-time employees and their dependents.

The IRS will be accepting comments on these proposed regulations until March 18, 2013.

At Setnor Byer Insurance & Risk, we are committed to guiding you through what is sure to be a bumpy ride. Check back with us periodically for future informational updates about the Affordable Care Act. If you have specific questions about the Act or if you are ready to take action and would like to see how Setnor Byer Insurance & Risk can help, contact us.

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