Under the Affordable Care Act (ACA), the federal and state governments, employers, and insurers were given a shared responsibility to improve the availability, quality, and affordability of health coverage in the US.
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 an employer shared responsibility 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.”
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 types of payments.
Important note: The IRS states that “the employer shared responsibility provisions provide for an inflation adjustment beginning in calendar years after 2014. In the case of any calendar year after 2014, the applicable per-employee dollar amounts of $2,000 and $3,000 are increased based on the premium adjustment percentage (as defined in section 1302(c)(4) of the Affordable Care Act) for the year, rounded to the next lowest multiple of $10.”
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 employer shared responsibility payment, the annual payment will be $2,000 (starting in 2015 and indexed for future years) for each full-time employee, excluding the first 30 full-time employees from the calculation. This calculation is based on all full-time employees, excluding the first 30, including those who have MEC under the employer’s plan or elsewhere.
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 employer shared responsibility payment is $3,000 (starting in 2015 and indexed for future years) 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 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 2015 and 2016, transition relief was available to ALEs under section 4980H, but not for subsequent years.
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.
Keeping up with your compliance efforts will help you to make the deadlines and avoid filing penalties for ACA forms. This is incredibly important now more than ever, as fine amounts and tax enforcement are increasing.
If you’d like to learn more about Form 1095-C, check out our other blog posts:
- Form 1095-C Guide
- 4 Common ACA Reporting Mistakes
- DC ACA State Filing Required
- New Jersey ACA State Filing Required
BoomTax, The Boom Post, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to engaging in any transaction.