Employer Shared Responsibility
The Affordable Care Act’s employer shared responsibility provisions require certain employers (called applicable large employers or ALEs) to offer affordable health coverage to at least 95% of their full-time employees and their dependents, or otherwise make a payment to the IRS.
According to the IRS, to be classified as an ALE for a particular calendar year “an employer must have had an average of at least 50 full-time employees (including full-time-equivalent employees) during the preceding calendar year.” This means that you will use the number of full-time employees during 2016 to determine if you are classified as an ALE for 2018.
If you are an ALE and do not offer affordable health coverage to at least 95% of your full-time employees, you may be subject to one of two employer shared responsibility payments.
Failure to Offer Minimum Essential Coverage
According to the IRS, “an ALE member will owe this first type of employer shared responsibility payment if, for any month, it does not offer minimum essential coverage to at least 95 percent of its full-time employees (and their dependents), and if at least one full-time employee receives the premium tax credit for purchasing coverage through the Marketplace.”
Generally, if you are subject to this type of payment, the annual payment will be $2,000 for each full-time employee, after excluding the first 30 full-time employees from the calculation.
Part-time and full-time equivalent employees do not factor into this calculation.
Failure to Offer Affordable Minimum Essential Coverage that Provides Minimum Value
This type of employer shared responsibility payment is imposed when an ALE member offers minimum essential coverage to a sufficient member of full-time employees, but will still generally owe payment for each full-time employee, if any, who receives the premium tax credit for purchasing coverage through the Marketplace.
According to the IRS, “a full-time employee could receive the premium tax credit if: (1) the minimum essential coverage the employer offers to the employee is not affordable; (2) the minimum essential coverage the employer offers to the employee does not provide minimum value; or (3) the employee is not one of the at least 95 percent of employees offered minimum essential coverage.”
An employer may be subject to this payment only if it is not subject to the employer shared responsibility payment for failure to offer minimum essential coverage.
The annual payment for this type of payment is $3,000 for each full-time employee who received the premium tax credit. The total amount cannot exceed the amount that the employer would have owed had it been liable for the first type of employer shared responsibility payment.
Part-time employees and full-time equivalent employees do not factor into this calculation.
You can learn more about the types of employer payments and how they are calculated through the IRS website.
It is important to note that, in previous years, transition relief was available to ALEs under section 4980H. According to the recently released ACA Reporting Draft Instructions for Tax Year 2017, no such relief will be available in 2017.
By determining whether you offered sufficient health coverage to satisfy the employer shared responsibility provisions, you will be able to accurately complete your ACA filing and be prepared for any payments that may result from non-compliance.