IRS Releases Questions and
Answers on Employer Shared Responsibility Provisions Under the Affordable Care
Act
By Larry Grudzien
On Feb. 10, 2014, the IRS and Treasury issued final
regulations on the Employer Shared Responsibility provisions under section
4980H of the Internal Revenue Code. They issued the following questions
and answers to provide helpful information about the guidance:
·
Basics of the Employer Shared Responsibility
Provisions: Questions 1-3
·
Which Employers are Subject to the Employer Shared
Responsibility Provisions:Questions 4-14
·
Identification of Full-Time Employees: Questions
15-17
·
Liability for the Employer Shared Responsibility
Payment: Questions 18-23
·
Calculation of the Employer Shared Responsibility
Payment:Questions 24-26
·
Making an Employer Shared Responsibility
Payment:Questions 27-28
·
Transition Relief:Questions 29-39
·
Basics for Small Employers:Questions 40 - 42
·
Additional Information:Questions 43-46
Basics of the Employer Shared
Responsibility Provisions
1. What are the
Employer Shared Responsibility provisions?
For 2015 and after,
employers employing at least a certain number of employees (generally 50
full-time employees or a combination of full-time and part-time employees that
is equivalent to 50 full-time employees) will be subject to the Employer Shared
Responsibility provisions under section 4980H of the Internal Revenue Code
(added to the Code by the Affordable Care Act). As defined by the statute, a
full-time employee is an individual employed on average at least 30 hours of
service per week. An employer that meets the 50 full-time employee threshold
is referred to as an applicable large employer.
Under the Employer
Shared Responsibility provisions, if these employers do not offer affordable
health coverage that provides a minimum level of coverage to their full-time
employees (and their dependents), the employer may be subject to an Employer
Shared Responsibility payment if at least one of its full-time employees
receives a premium tax credit for purchasing individual coverage on one of the
new Affordable Insurance Exchanges, also called a Health Insurance Marketplace
(Marketplace).
2. When do the
Employer Shared Responsibility provisions go into effect?
The Employer Shared
Responsibility provisions generally are not effective until Jan. 1, 2015,
meaning that no Employer Shared Responsibility payments will be assessed for
2014. See Notice 2013-45. Employers will use information about the
number of employees they employ and their hours of service during 2014 to
determine whether they employ enough employees to be an applicable large
employer for 2015. See question 4 for more information on determining
whether an employer is an applicable large employer and questions 29 through 39
for more information about transition relief for 2015.
3. Is more
detailed information available about the Employer Shared Responsibility
provisions?
Yes. Treasury
and the IRS have issued final regulations on the Employer Shared Responsibility
provisions. Treasury and the IRS also have issued proposed regulations on
the related Information Reporting by Applicable Large Employers on Health
Insurance Coverage Offered under Employer-Sponsored Plans.
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Which Employers Are Subject to the
Employer Shared Responsibility Provisions?
4. I understand
that the Employer Shared Responsibility provisions apply only to employers
employing at least a certain number of employees. How many employees must
an employer have to be subject to the Employer Shared Responsibility
provisions?
To be subject to the
Employer Shared Responsibility provisions for a calendar year, an employer must
have employed during the previous calendar year at least 50 full-time employees
or a combination of full-time and part-time employees that equals at least
50. For example, an employer that employs 40 full-time employees (that is,
employees employed 30 or more hours per week on average) and 20 employees
employed 15 hours per week on average has the equivalent of 50 full-time
employees, and would be an applicable large employer.
Seasonal workers are
taken into account in determining the number of full-time
employees. However, if an employer's workforce exceeds 50 full-time
employees (including full-time equivalents) for 120 days or fewer during a
calendar year, and the employees in excess of 50 who were employed during that
period of no more than 120 days were seasonal workers, the employer is not
considered an applicable large employer. Seasonal workers are workers who
perform labor or services on a seasonal basis as defined by the Secretary of
Labor, and retail workers employed exclusively during holiday seasons.
For this purpose, employers may apply a reasonable, good faith interpretation
of the term "seasonal worker."
Employers will
determine each year, based on their current number of employees, whether they
will be considered an applicable large employer for the next year. For
example, if an employer has at least 50 full-time employees (including
full-time equivalents) for 2014, it will be considered an applicable large
employer for 2015. Note that because employers will be performing this
calculation for the first time to determine their status for 2015, there is a
transition rule intended to make this first calculation easier. See question 31
for a discussion of this transition rule for 2015 determination of applicable
large employer status.
Employers average
their number of employees across the months in the year to see whether they
will be an applicable large employer for the next year. This averaging can
take account of fluctuations that many employers may experience in their work
force across the year. The final regulations provide additional
information about how to determine the average number of employees for a year,
including information about how to take account of salaried employees who may
not clock their hours.
5. How does an
employer that was not in existence throughout the preceding calendar year
determine if it employs enough employees to be subject to the Employer Shared
Responsibility provisions?
An employer that was
not in existence on any business day in the prior calendar year is considered
an applicable large employer in the current year if the employer is reasonably
expected to employ an average of at least 50 full-time employees (including
full-time equivalents) on business days during the current calendar year and it
actually employs an average of at least 50 full-time employees (including
full-time equivalents) on business days during the calendar year. In
contrast, for the next year (the year after the first year the employer was in
existence), the employer will determine its status as an applicable large
employer using the rules that generally apply (that is, based on the number of
full-time employees and full-time equivalents that the employer employed in the
preceding year).
6. If two or
more companies have a common owner or are otherwise related, are they combined
for purposes of determining whether they employ enough employees to be subject
to the Employer Shared Responsibility provisions?
Yes, section 4980H
includes a longstanding provision that also applies for other tax and employee
benefit purposes, under which companies that have a common owner or are
otherwise related generally are combined and treated as a single employer, and
so would be combined for purposes of determining whether or not they
collectively employ at least 50 full-time employees (including full-time
equivalents). If the combined total meets the threshold, then each separate
company is subject to the Employer Shared Responsibility provisions, even those
companies that individually do not employ enough employees to meet the
threshold. (Note that these rules for combining related employers do not
apply for purposes of determining whether a particular company owes an Employer
Shared Responsibility payment or the amount of any payment. That is
determined separately for each related company).
7. Do the
Employer Shared Responsibility provisions apply only to large employers that
are for-profit businesses or to other large employers as well?
All employers that
are applicable large employers are subject to the Employer Shared
Responsibility provisions, including for-profit, non-profit, and government
entity employers.
8. Do the Employer
Shared Responsibility provisions apply to government entities?
Yes. There is no
exclusion from the Employer Shared Responsibility provisions for government
entities. All employers that are applicable large employers are subject to
the Employer Shared Responsibility provisions, including federal, state, local,
and Indian tribal government employers.
9. Do the Employer
Shared Responsibility provisions apply to employers in states where a
Federally-facilitated Exchange (Marketplace) has been established on behalf of
the state?
Yes. An
applicable large employer is subject to an Employer Shared Responsibility
payment if at least one of its full-time employees receives a premium tax
credit. A premium tax credit is only available to eligible individuals who
obtain coverage through a Marketplace, which includes a State Based Exchange,
regional Exchange, subsidiary Exchange, or the Federally-facilitated Exchange
established on behalf of a state.
10. Do the Employer
Shared Responsibility provisions apply to employers with full-time employees
who are eligible for health coverage through another source, such as Medicare,
Medicaid, or a spouse's employer?
Yes. For
purposes of determining whether an employer is an applicable large employer,
all employees are counted (subject to a limited exception for certain seasonal
workers), regardless of whether the employees are eligible for health coverage
from another source, such as Medicare, Medicaid, or a spouse's
employer. Thus, an applicable large employer with full-time employees who
are eligible for health coverage through another source, such as Medicare,
Medicaid, or a spouse's employer, will be subject to the Employer Shared
Responsibility provisions regardless of whether those employees are eligible
for coverage from another source. But, employees who are eligible for
Medicare or Medicaid are not eligible for a premium tax credit. If no
full-time employee receives a premium tax credit (for example, because all of
an employer's full-time employees are eligible for Medicare or Medicaid), the
employer will not be subject to an Employer Shared Responsibility
payment.
However, as described
in question 18 below, if an applicable large employer does not offer coverage
to its full-time employees (and their dependents) or offers coverage to fewer
than 95% of its full-time employees (and their dependents) and a full-time
employee receives a premium tax credit, the employer will be liable for an
Employer Shared Responsibility payment, which will be calculated based on the
employer's number of full-time employees. For this purpose, the number of
full-time employees includes full-time employees who are eligible for coverage
from another source. See questions 33 through 37 for transition relief for
2015.
11. Do the Employer
Shared Responsibility provisions apply to employers with full-time employees
who are exempt from the Individual Shared Responsibility provision, such as members
of a Health Care Sharing Ministry or members of a Federally-recognized Indian
tribe?
Yes. For
purposes of determining whether an employer is an applicable large employer,
all employees are counted (subject to a limited exception for certain seasonal
workers), regardless of whether they are exempt from the Individual Shared
Responsibility provision. Thus, an applicable large employer with
full-time employees who are exempt from the Individual Shared Responsibility
provision will be subject to the Employer Shared Responsibility provision.
Employees who are exempt from the Individual Shared Responsibility provision
may be eligible for a premium tax credit. If no full-time employee
receives a premium tax credit, the employer will not be subject to an Employer
Shared Responsibility payment. However, if an applicable large employer
does not offer coverage to its full-time employees (and their dependents) and a
full-time employee receives a premium tax credit, the employer will be liable
for an Employer Shared Responsibility payment which will be calculated based on
the employer's number of full-time employees. See questions 10
and18.
12. Which
employers are not subject to the Employer Shared Responsibility provisions?
For a calendar year,
employers who employ fewer than 50 full-time employees (including full-time
equivalents) in the prior calendar year are not subject to the Employer Shared
Responsibility provisions. See question 4 for a limited exception for
employers with certain seasonal workers, and questions 34 through 36 for 2015
transition relief for employers with fewer than 100 full-time employees
(including full-time equivalents).
13. Are
companies with employees working outside the United States subject to the
Employer Shared Responsibility provisions?
For purposes of
determining whether an employer is an applicable large employer, an employer
generally takes into account only work performed in the United States. For
example, if a foreign employer has a large workforce worldwide, but fewer than
50 full-time employees (including full-time equivalents) in the United States,
the foreign employer generally would not be subject to the Employer Shared
Responsibility provisions.
14. Are
companies that employ U.S. citizens working abroad subject to the Employer
Shared Responsibility provisions?
A company that
employs U.S. citizens working abroad generally would be subject to the Employer
Shared Responsibility provisions only if the company had at least 50 full-time
employees (including full-time equivalents), determined by taking into account
work performed in the United States. Thus, employees working only abroad,
whether or not U.S. citizens, generally will not be taken into account for
purposes of determining whether an employer is applicable large employer or for
purposes of determining whether the employer owes an Employer Shared
Responsibility payment or the amount of any such payment.
Identification of Full-Time
Employees
15. How does an
employer identify its full-time employees for purposes of the Employer Shared
Responsibility provisions?
An employer's number
of full-time employees matters both for purposes of whether the Employer Shared
Responsibility provisions apply to an employer and whether an Employer Shared
Responsibility payment is owed by an employer (and the amount of that
payment). An employer identifies its full-time employees based on each
employee's hours of service. For purposes of the Employer Shared
Responsibility provisions, an employee is a full-time employee for a calendar
month if he or she averages at least 30 hours of service per week. Under
the final regulations, for purposes of determining full-time employee status,
130 hours of service in a calendar month is treated as the monthly equivalent
of at least 30 hours of service per week.
The final regulations
provide two measurement methods for determining whether an employee has
sufficient hours of service to be a full-time employee. One method is the
monthly measurement method under which an employer determines each employee's
status as a full-time employee by counting the employee's hours of service for
each month. The other method is the look-back measurement method under
which an employer may determine the status of an employee as a full-time
employee during a future period (referred to as the stability period), based
upon the hours of service of the employee in a prior period (referred to as the
measurement period). The look-back measurement method for identifying
full-time employees is available only for purposes of determining and computing
liability for an Employer Shared Responsibility payment, and not for purposes
of determining if the employer is an applicable large employer. The final
regulations describe approaches that can be used for various circumstances,
such as for employees who work variable hour schedules, seasonal employees, and
employees of educational organizations.
These methods
prescribe minimum standards for the identification of full-time employee
status. Employers always may make additional employees eligible for
coverage, or otherwise offer coverage more expansively than required.
16. For
purposes of the Employer Shared Responsibility provisions, what is an hour of
service?
Generally, an hour of
service means each hour for which an employee is paid, or entitled to payment,
for the performance of duties for the employer, and each hour for which an
employee is paid, or entitled to payment, for a period of time during which no
duties are performed due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence.
Under the final
regulations, an hour of service does not include any hour of service performed
as a bona fide volunteer, as part of a Federal Work-Study Program (or a
substantially similar program of a State or political subdivision thereof) or
to the extent the compensation for services performed constitutes income from
sources without the United States.
In addition, until
further guidance is issued, a religious order is permitted, for purposes of
determining if an employee is a full-time employee for the Employer Shared
Responsibility provisions, to not count as an hour of service any work
performed by an individual who is subject to a vow of poverty as a member of
that order when the work is in the performance of tasks usually required (and
to the extent usually required) of an active member of theorder.
17. Are there
special rules for hours of service that are particularly challenging to
identify or track or for whom the final regulations' general rules for
determining hours of service may present special difficulties?
Treasury and the IRS
continue to consider additional rules for the determination of hours of service
for certain categories of employees whose hours of service are particularly
challenging to identify or track or for whom the general rules for determining
hours of service may present special difficulties (including adjunct faculty,
commissioned salespeople and airline employees) and certain categories of work
hours associated with some positions of employment, including layover hours
(for example for airline employees) and on-call hours. For this purpose,
until further guidance is issued, employers are required to use a reasonable
method of crediting hours of service that is consistent with section
4980H. The preamble to the final regulations includes examples of methods
of crediting these hours that are reasonable and that are not reasonable,
including a method that is considered reasonable for crediting hours of service
for adjunct faculty members.
Liability for the Employer Shared
Responsibility Payment
18. Under what
circumstances will an employer owe an Employer Shared Responsibility payment?
For 2015 and after,
an applicable large employer will be liable for an Employer Shared
Responsibility payment only if:
(a) The employer does
not offer health coverage or offers coverage to fewer than 95% of its full-time
employees and the dependents of those employees, and at least one of the
full-time employees receives a premium tax credit to help pay for coverage on a
Marketplace;
OR
(b) The employer
offers health coverage to all or 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 a Marketplace, which may occur because the employer did not offer
coverage to that employee or because the coverage the employer offered that
employee was either unaffordable to the employee (see question 19, below) or
did not provide minimum value (see question 20, below).
But see question 33
for transition relief with respect to offers of coverage to dependents for
2015, questions 34 through 36 for 2015 transition relief for certain employers
with fewer than 100 full-time employees (including full-time equivalents), and
question 37 for 2015 transition relief for all other employers with respect to
the percentage of full-time employees to whom coverage must be offered to avoid
the payment described in paragraph (a) above.
19. How does an
employer know whether the coverage it offers is affordable?
If an employee's
share of the premium for employer-provided coverage would cost the employee
more than 9.5% of that employee's annual household income, the coverage is not
considered affordable for that employee. Because employers generally will
not know their employees' household incomes, employers can take advantage of
one or more of the three affordability safe harbors set forth in the final
regulations that are based on information the employer will have available,
such as the employee's Form W-2 wages or the employee's rate of pay. If an
employer meets the requirements of any of these safe harbors, the offer of
coverage will be deemed affordable for purposes of the Employer Shared
Responsibility provisions regardless of whether it was affordable to the
employee for purposes of the premium tax credit.
The three
affordability safe harbors are (1) the Form W-2 wages safe harbor, (2) the rate
of pay safe harbor, and (3) the federal poverty line safe harbor. These
safe harbors are all optional. An employer may use one or more of the safe
harbors only if the employer offers its full-time employees and their
dependents the opportunity to enroll in minimum essential coverage under an
eligible employer-sponsored plan that provides minimum value for the self-only
coverage offered to the employee. An employer may choose to use one or
more of the safe harbors for all of its employees or for any reasonable
category of employees, provided it does so on a uniform and consistent basis
for all employees in a category. If an employer offers multiple healthcare
coverage options, the affordability test applies to the lowest-cost self-only
option available to the employee that also meets the minimum value requirement
(see question 20, below.)
The Form W-2 wages
safe harbor generally is based on the amount of wages paid to the employee that
are reported in Box 1 of that employee's Form W-2. The rate of pay safe
harbor generally is based on the employee's rate of pay at the beginning of the
coverage period, with adjustments permitted, for an hourly employee, if the
rate of pay is decreased (but not if the rate of pay is increased). The
federal poverty line safe harbor generally treats coverage as affordable if the
employee contribution for the year does not exceed 9.5% of the federal poverty
line for a single individual for the applicable calendar year. The final
regulations provide additional information on these affordability safe
harbors.
20. How does an
employer know whether the coverage it offers provides minimum value?
A plan provides
minimum value if it covers at least 60 percent of the total allowed cost of
benefits that are expected to be incurred under the plan. The Department of
Health and Human Services (HHS) and the IRS have produced a minimum value
calculator. By entering certain information about the plan, such as deductibles
and co-pays, into the calculator employers can get a determination as to
whether the plan provides minimum value. Additionally, on May 3, 2013, Treasury
and the IRS issued proposed regulations regarding the other methods available
to determine minimum value.
21. If an employer
offers health coverage that is affordable and that provides minimum value to
its full-time employees and offers health coverage to the dependents of those
employees, will it be subject to an Employer Shared Responsibility payment if
some of its employees purchase health insurance through a Marketplace or if
some of its employees enroll in Medicare or Medicaid?
No. An
applicable large employer will not be subject to an Employer Shared
Responsibility payment solely because one, some, or all of its employees
purchase health insurance coverage through a Marketplace or enroll in Medicare
or Medicaid. An employer will not be liable for an Employer Shared
Responsibility payment unless at least one full-time employee receives a
premium tax credit. In general, an employee will not be eligible for a
premium tax credit if the employer has offered that employee health coverage
that is affordable (see question 19) and that provides minimum value (see
question 20), even if that employee rejects the offer of coverage and instead
enrolls in coverage through a Marketplace or enrolls in Medicare or
Medicaid. If no full-time employee receives a premium tax credit, the
employer will not be subject to an Employer Shared Responsibility payment.
22. If an
employer offers health coverage that is affordable and that provides minimum
value to its full-time employees and offers health coverage to the dependents
of those employees, will it be subject to an Employer Shared Responsibility
payment if an employee's spouse purchases health insurance through a
Marketplace, or if a spouse enrolls in Medicare or Medicaid?
No. To avoid a
potential Employer Shared Responsibility payment an applicable large employer
must offer health coverage that is affordable and provides minimum value to its
full-time employees and must offer health coverage to the dependents of those
employees (see questions 18, 19 and 20). For this purpose, a spouse is not
a dependent. An applicable large employer will not be subject to an
Employer Shared Responsibility payment solely because it does not offer health
coverage to an employee's spouse or if the spouse purchases health insurance
coverage through a Marketplace or enrolls in Medicare or Medicaid. An
employer will not be liable for an Employer Shared Responsibility payment
unless a full-time employee receives a premium tax credit. If no full-time
employee receives a premium tax credit, the employer will not be subject to an
Employer Shared Responsibility payment. Thus, even if an employee's spouse
receives a premium tax credit, the employer will not be subject to an Employer
Shared Responsibility payment.
If an applicable
large employer offers health coverage that is affordable and that provides
minimum value to a full-time employee's spouse, the spouse will not be eligible
for the premium tax credit. For more information about eligibility for
the premium tax credit, see our final regulations and questions and answers.
23. If an
employer offers health coverage that is affordable and that provides minimum
value to its full-time employees and offers health coverage to the dependents
of those employees, will it be subject to an Employer Shared Responsibility
payment if some of its employees purchase health insurance coverage for their
dependents through a Marketplace or if some of its employees enroll their
dependents in Medicare or Medicaid?
No. An
applicable large employer will not be subject to an Employer Shared
Responsibility payment solely because one, some or all of its employees
purchase health insurance coverage for their dependents through a Marketplace
or enroll their dependents in Medicare or Medicaid. An employer will not
be liable for an Employer Shared Responsibility payment unless a full-time
employee receives a premium tax credit. If no full-time employee receives
a premium tax credit, the employer will not be subject to an Employer Shared
Responsibility payment.
If an employer offers
health coverage that is affordable (see question 19) and that provides minimum
value (see question 20) to the dependents of its full-time employees, those
dependents will not be eligible for a premium tax credit. For more
information about eligibility for a premium tax credit, see our final
regulations and questions and answers.
Calculation of the Employer Shared
Responsibility Payment
24. If an
employer that does not offer coverage or that offers coverage to fewer than 95%
of its full-time employees (and their dependents) owes an Employer Shared
Responsibility payment, how is the amount of the payment calculated?
If an applicable
large employer does not offer coverage or offers coverage to fewer than 95% of
its full-time employees (and their dependents), it owes an Employer Shared
Responsibility payment equal to the number of full-time employees the employer
employed for the year (minus up to 30) multiplied by $2,000, as long as at
least one full-time employee receives the premium tax credit. (Note that
for purposes of this calculation, a full-time employee does not include a
full-time equivalent). Also, see question 33 for transition relief
for offers of coverage to dependents for 2015.
For an employer that
offers coverage for some months but not others during the calendar year, the
payment is computed separately for each month for which coverage was not
offered. The amount of the payment for the month equals the number of
full-time employees the employer employed for the month (minus up to 30)
multiplied by 1/12 of $2,000. If the employer is related to other
employers (see question 6 above), then the 30-employee exclusion is allocated
among all the related employers in proportion to each employer's number of
full-time employees. See questions 38 and 39 for information about 2015
transition relief for calculating the payment.
25. If an
employer offers coverage to at least 95% of its full-time employees (and their
dependents), but, nevertheless, owes the Employer Shared Responsibility
payment, how is the amount of the payment calculated?
For an employer that
offers coverage to at least 95% of its full-time employees (and their dependents),
but has one or more full-time employees who receive a premium tax credit, the
payment is computed separately for each month. See question 33 for transition
relief with respect to offers of coverage to dependents for 2015. The
amount of the payment for the month equals the number of full-time employees
who receive a premium tax credit for that month multiplied by 1/12 of
$3,000. The amount of the payment for any calendar month is capped at the
number of the employer's full-time employees for the month (minus up to 30)
multiplied by 1/12 of $2,000. (The cap ensures that the payment for an
employer that offers coverage can never exceed the payment that employer would
owe if it did not offer coverage (See question 24)). See questions 38 and
39 for information about 2015 transition relief for calculating the payment.
26. Will the amount
of the Employer Shared Responsibility payment be increased over time?
Yes. The
Employer Shared Responsibility provisions provide an inflation adjustment
mechanism beginning in years after 2014. The transition relief announced
in Notice 2013-45 that section 4980H will not be applied for 2014 does not
affect the statutory inflation adjustment mechanism beginning in years after
2014.
Making an Employer Shared
Responsibility Payment
27. How will an
employer know that it owes an Employer Shared Responsibility payment?
The IRS will adopt
procedures that ensure employers receive certification that one or more
employees have received a premium tax credit. The IRS will contact
employers to inform them of their potential liability and provide them an
opportunity to respond before any liability is assessed or notice and demand
for payment is made. The contact for a given calendar year will not occur
until after the due date for employees to file individual tax returns for that
year claiming premium tax credits and after the due date for applicable large
employers to file the information returns identifying their full-time employees
and describing the coverage that was offered (if any).
28. How will an
employer make an Employer Shared Responsibility payment?
If it is determined
that an employer is liable for an Employer Shared Responsibility payment after
the employer has responded to the initial IRS contact, the IRS will send a
notice and demand for payment. That notice will instruct the employer on
how to make the payment. Employers will not be required to include the Employer
Shared Responsibility payment on any tax return that they file.
As explained in
question 2, no Employer Shared Responsibility payments will be assessed for
2014.
Transition Relief
29. Is there
transition relief from the Employer Shared Responsibility provisions for 2014?
Yes. Notice 2013-45,
issued on July 9, 2013, provides as transition relief that no Employer Shared
Responsibility payment applies for 2014. The Employer Shared
Responsibility provisions are effective for 2015 (see question 2). See
questions 30 through 39 for additional information about 2015 transition
relief.
30. I understand
that the Employer Shared Responsibility provisions do not go into effect until
2015. However, the health plan that I offer to my employees runs on a
non-calendar year plan year that starts in 2014 and will run into 2015. Do
I need to make sure my plan complies with the Employer Shared Responsibility
provisions in 2014 when the next non-calendar year plan year starts?
The preamble to the
final regulations provides three pieces of transition relief addressing
non-calendar year plans - (1) pre-2015 eligibility transition relief, (2)
significant percentage transition relief (all employees) and (3) significant
percentage transition relief (full-time employees). The first piece of
relief generally addresses employees that are already eligible to participate
in the non-calendar year plan. Specifically the pre-2015 eligibility
transition relief provides that for any employees (whenever hired) who are
eligible for coverage on the first day of the 2015 plan year under the
eligibility terms of the plan as of Feb. 9, 2014, (whether or not they take the
coverage) and who are offered affordable coverage that provides minimum value
effective no later than the first day of the 2015 plan year, the employer will
not be subject to a potential Employer Shared Responsibility payment until the
first day of the 2015 plan year. The remaining two pieces of relief
generally address employees that have not been eligible to participate in the
non-calendar year plan. They provide that if the employer meets certain requirements
generally related to the portion of the employer's employees already eligible
for or participating in the non-calendar year plan, the relief may be extended
to those employees that have not been eligible to participate. The
preamble to the final regulations provides additional information on the rules
for determining whether an employer is eligible for this relief. All of
this transition relief applies for the period before the first day of the first
non-calendar year plan year beginning in 2015 (the 2015 plan year) but only for
employers that maintained non-calendar year plans as of Dec. 27, 2012, and only
if the plan year was not modified after Dec. 27, 2012, to begin at a later
calendar date. See question 36 on 2015 transition relief.
31. Is transition
relief available to assist employers that are close to the 50 full-time
employee threshold in determining if they are an applicable large employer for
2015?
Yes. Rather than
being required to use the full twelve months of 2014 to measure whether it has
50 full-time employees (or equivalents), an employer may measure during any
consecutive six-month period (as chosen by the employer) during 2014. For
example, an employer could use a period of at least six months through August
2014 to determine its applicable large employer status and, if it is an
applicable large employer, the period from September through December 2014 to
make any needed adjustments to its plan (or to establish a plan). See question
36 on 2015 transition relief.
32. For 2015, will
employees who receive offers of coverage effective as of the first day of the
first pay period beginning on or after the first day of the year be treated as
having been offered coverage for January 2015?
Yes. Generally,
if an employer fails to offer coverage to a full-time employee for any day of a
calendar month, that employee is treated as not offered coverage during the
entire month. Solely for purposes of January 2015, if an employer offers
coverage to a full-time employee no later than the first day of the first
payroll period that begins in January 2015, the employee will be treated as
having been offered coverage for January 2015.
33. Do employers
have additional time to expand their 2015 health plans to add dependent
coverage?
The transition relief
in the preamble to the final regulation generally extends the transition relief
that had been provided for plan years that begin in 2014 (2014 plan years) to
plan years that begin in 2015 (2015 plan years). Under this transition
relief, an employer that takes steps during its 2014 plan year toward offering
dependent coverage will not be subject to an Employer Shared Responsibility
payment solely on account of a failure to offer coverage to dependents for that
plan year.
This extended
transition relief applies to employers for the 2015 plan year for plans under
which (1) dependent coverage is not offered, (2) dependent coverage that does
not constitute minimum essential coverage is offered, or (3) dependent coverage
is offered for some, but not all, dependents.
The transition relief
is not available to the extent the employer had offered dependent coverage
during either the plan year that begins in 2013 (2013 plan year), or the 2014
plan year and subsequently dropped that offer of coverage. The transition
relief, as extended, applies only for dependents who were without an offer of
coverage from the employer in both the 2013 and 2014 plan years and if the
employer takes steps during the 2014 or 2015 plan year (or both) to extend coverage
under the plan to dependents not offered coverage during the 2013 or 2014 plan
year (or both). See question 36 on 2015 transition relief.
34. Is
additional transition relief available for employers with at least 50 but fewer
than 100 full-time employees (including full-time equivalents)?
Yes. For
employers with fewer than 100 full-time employees (including full-time
equivalents) in 2014, that meet the conditions described below, no Employer
Shared Responsibility payment under section 4980H(a) or (b) will apply for any
calendar month during 2015. For employers with non-calendar-year health
plans, this applies to any calendar month during the 2015 plan year, including
months during the 2015 plan year that fall in 2016.
In order to be
eligible for the relief, an employer must certify that it meets the following
conditions:
(1) Limited Workforce
Size. The employer must employ on average at least 50 full-time employees
(including full-time equivalents) but fewer than 100 full-time employees
(including full-time equivalents) on business days during 2014. (Employers with
fewer than 50 full-time employees (including full-time equivalents) on business
days during the previous year are not subject to the Employer Shared
Responsibility provisions.) The number of full-time employees (including
full-time equivalents) is determined in accordance with the otherwise
applicable rules in the final regulations for determining status as an
applicable large employer.
(2) Maintenance
of Workforce and Aggregate Hours of Service. During the period beginning
on Febr. 9, 2014and ending on Dec. 31, 2014, the employer may not reduce the
size of its workforce or the overall hours of service of its employees in order
to qualify for the transition relief. However, an employer that reduces
workforce size or overall hours of service for bona fide business reasons is
still eligible for the relief.
(3) Maintenance
of Previously Offered Health Coverage. During the period beginning on
Feb. 9, 2014 and ending on Dec. 31, 2015 (or, for employers with
non-calendar-year plans, ending on the last day of the 2015 plan year) the
employer does not eliminate or materially reduce the health coverage, if any,
it offered as of Feb. 9, 2014. An employer will not be treated as eliminating
or materially reducing health coverage if (i) it continues to offer each
employee who is eligible for coverage an employer contribution toward the cost
of employee-only coverage that either (A) is at least 95 percent of the dollar
amount of the contribution toward such coverage that the employer was offering
on Feb. 9, 2014, or (B) is at least the same percentage of the cost of coverage
that the employer was offering to contribute toward coverage on Feb. 9, 2014;
(ii) in the event of a change in benefits under the employee-only coverage
offered, that coverage provides minimum value after the change; and (iii) it
does not alter the terms of its group health plans to narrow or reduce the
class or classes of employees (or the employees' dependents) to whom coverage
under those plans was offered on Feb. 9, 2014.
35. Is the transition
relief for employers with at least 50 but fewer than 100 full-time employees
(including full-time equivalents) available to newly formed employers? If
so, how does a new employer know whether it qualifies for the relief?
Yes, the relief is
available to new employers (that is, employers that are not in existence on any
business day in 2014).
For new employers
that would be applicable large employers under the general rules in the final
regulations, the special transition relief applies if the employer certifies
that it (i) reasonably expects to employ and actually employs fewer than 100
full-time employees (including full-time equivalents) on business days during
2015; and (ii) reasonably expects to meet and actually meets the standards
relating to maintenance of workforce and aggregate hours of service and of
previously offered health coverage, as measured from the date the employer is
first in existence.
36. How does the
transition relief for employers with fewer than 100 full-time employees
coordinate with other transition relief available under the final regulations?
For periods on or
after Jan. 1, 2016 (or, if applicable, for any period after the last day of the
2015 plan year) the transition relief for 2015 generally is not available. An
employer may, however, use the shorter period in 2014 permitted for determining
applicable large employer status for 2015 in determining applicable large
employer status and full-time employee count for 2015 (but not for any
subsequent year). See questions 30 through 33.
37. Under what
circumstances will an employer that is not eligible for the relief described in
question 34 owe an Employer Shared Responsibility payment for 2015?
For 2015 (and for
employers with non-calendar-year plans, any calendar months during the 2015
plan year that fall in 2016), an employer that (a) had at least 100 full-time
employees (including full-time equivalents) in 2014, or (b) had at least 50 but
fewer than 100 full-time employees (including full-time equivalents) but does
not qualify for the relief described in question 34, will be liable for an
Employer Shared Responsibility payment only if:
·
The employer does not offer health coverage or
offers coverage to fewer than 70% of its full-time employees and (unless the
employer qualifies for the 2015 dependent coverage transition relief described
in question 33) the dependents of those employees, and at least one of the
full-time employees receives a premium tax credit to help pay for coverage on a
Marketplace.
OR
·
The employer offers health coverage to at least 70%
of its full-time employees and (unless the employer qualifies for the 2015
dependent coverage transition relief described in question 33) the dependents
of those employees, but at least one full-time employee receives a premium tax
credit to help pay for coverage on a Marketplace, which may occur because the
employer did not offer coverage to that employee or because the coverage the
employer offered that employee was either unaffordable (see question 19) to the
employee or did not provide minimum value (see question 20).
After 2015, 95% should be
substituted for 70% in the bullets above (see question 18).
38. For 2015, if an
employer with at least 100 full-time employees (including full-time
equivalents) that does not offer coverage or that offers coverage to fewer than
70% of its full-time employees (and their dependents) owes an Employer Shared
Responsibility payment, how is the amount of the payment calculated?
For any calendar month in 2015 or
any calendar month in 2016 that falls within an employer's non-calendar 2015 plan
year, if an applicable large employer with at least 100 full-time employees
(including full-time equivalents) does not offer coverage to at least 70% of
its full-time employees (and their dependents), it owes an Employer Shared
Responsibility payment equal to the number of full-time employees the employer
employed for the month (minus 80) multiplied by 1/12 of $2,000, provided that
at least one full-time employee receives a premium tax credit for that
month. See questions 24 and 25.
39. For 2015, if an
employer with at least 100 full-time employees (including full-time
equivalents) offers coverage to at least 70% of its full-time employees, and,
nevertheless, owes an Employer Shared Responsibility payment, how is the amount
of the payment calculated?
For an employer with at least 100
full-time employees (including full-time equivalents) that offers coverage to
at least 70% of its full-time employees in 2015, but has one or more full-time
employees who receive a premium tax credit, the payment is computed separately
for each month. The amount of the payment for the month equals the number
of full-time employees who receive a premium tax credit for that month
multiplied by 1/12 of $3,000. The amount of the payment for any calendar
month is capped at the number of the employer's full-time employees for the
month (minus up to 80) multiplied by 1/12 of $2,000. See questions 24 and
25.
Basics for Small Employers
40. I am a small employer with 30
employees. How do the Employer Shared Responsibility provisions (Code section
4980H) affect me?
They don't. Employers that
employ fewer than 50 full-time employees (including full-time equivalents) in
their businesses are not subject to the Employer Shared Responsibility
provisions. The vast majority of businesses fall below this threshold.
In addition, the preamble to the
final regulations for the Employer Shared Responsibility provisions provides
transition relief for 2015. Employers with at least 50 but fewer than 100
full-time employees (including full-time equivalents) in 2014 that meet
conditions described in the preamble to the final regulations will not be
subject to any Employer Shared Responsibility payments for 2015 (or for the
2015 plan year in the case of an employer with a non-calendar-year health
plan).
41. If I hire additional
employees, including some part-time employees, how do I determine if I have
become large enough to be subject to the Employer Shared Responsibility
provisions?
An employer determines if it is
subject to these provisions for a current year by counting how many full-time
employees and full-time equivalents it employed during the prior calendar
year.
First, for each month of the
prior year, the employer counts its employees working an average of 30 or more
hours per week as full-time employees and, if it has employees working less
than that, adds the number of full-time equivalents (determined by simply
adding up the hours that are worked by these less-than-full-time employees for
the month, but no more than 120 hours per employee, and then dividing by
120).
Second, the resulting totals for
each month in the prior year are added together and then divided by 12 to get
an average for the prior year. If the result is less than 50, the
employer is not subject to these rules for the current year and need not take
any other action.
(If the result is 50 or more but
some of the employees are seasonal workers, certain adjustments may still bring
the average down to less than 50.)
Two transition rules apply in
2015 that are particularly relevant for small employers close to the 50
full-time employee (including full-time equivalents) threshold. First,
employers with at least 50 but fewer than 100 full-time employees (including
full-time equivalents) in 2014 that meet conditions described in the preamble
to the final regulations will not be subject to any Employer Shared
Responsibility payments for 2015 (or for the 2015 plan year in the case of an
employer with a non-calendar-year health plan). These employers determine
if they have 100 or more employees in the same manner as described
above. And, second, rather than being required to use the full twelve
months of 2014 to measure if it has 100 full-time employees (including full-time
equivalents), an employer may measure during any consecutive six-month period
(as chosen by the employer) during 2014. For example, an employer could use a
period of at least six months through August 2014 to determine its applicable
large employer status and, if it is an applicable large employer, the period
from September through December 2014 to make any needed adjustments to its plan
(or to establish a plan). See question 36 on 2015 transition relief.
42. What if I buy or start
another business that has another group of employees, but my new business is in
an entity that is separate from my existing business?
In that case, section 4980H
provides for common ownership and control "aggregation" rules that
may apply. These are similar to rules that have applied to 401(k) and
other retirement plans for years. Under these rules, the employees of
businesses that are under common control are added together to determine if an
employer employs the equivalent of at least 50 (or 100 under the 2015
transition rule noted above) full-time employees (including full-time
equivalents).
For example, if an individual
owns 80% or more of two businesses that are separate legal entities, the total
number of full-time employees of that employer is based on the full-time employees
(including full-time equivalents) in both businesses combined together.
If the employees in the combined businesses add up to fewer than 50 full-time
employees (including full-time equivalents) in a year, the Employer Shared
Responsibility provisions will not apply to those businesses for the following
year.
Additional Information
43. When can an employee
receive a premium tax credit?
The premium tax credit generally
is available to help pay for coverage for employees who
·
have household income between 100% and 400% of the
federal poverty line and enroll in coverage through a Marketplace,
·
are not eligible for coverage through a
government-sponsored program like Medicaid or CHIP, and
·
are not eligible for coverage offered by an employer
or are eligible only for employer coverage that is unaffordable or that does
not provide minimum value.
44. If an employer does not
employ enough employees to be subject to the Employer Shared Responsibility
provisions, does that affect the employees' eligibility for a premium tax
credit?
No. The rules for how eligibility
for employer-sponsored insurance affects eligibility for the premium tax credit
are the same, regardless of whether the employer is subject to the Employer
Shared Responsibility provisions.
45. Where can employers get
more information about the information reporting requirements on health
coverage for employers and for insurers?
Treasury and the IRS have issued
proposed regulations on information reporting on health coverage for employers
and information reporting on health coverage for providers of minimum essential
coverage.
46. Where can employees get
more information about the Marketplace?
The Department of Health and
Human Services administers the requirements for the Marketplace and the health
plans offered in the Marketplace. For more information about your
coverage options, financial assistance, and the Marketplace, visit HealthCare.gov.
If you have any comments or questions regarding any of above
information, please do not hesitate to call Robert Slayton at 630-779-1144 or
Larry Grudzien at (708) 717-9638.
