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The Internal Revenue Service (IRS) has released a new proposed Rule, Notice 2011-73, which establishes a safe harbor for employers under the “shared responsibility” provisions of the Patient Protection and Affordable Care Act (PPACA). Beginning 2014, PPACA requires mid-to-large sized employers to offer their full-time employees a baseline insurance coverage policy. The concept of the “affordability” assessment leading to a “safe harbor” for employers is designed to help businesses determine whether or not they need to pay any additional funds and/or pay a penalty if they are not covering enough or any of the health insurance costs for their employees.
Under the shared employer responsibility requirement, commonly referred to as the “pay or play” mandate, employers with 50 or more employees must provide affordable “minimal essential” health coverage to their full-time employees or pay a penalty. In addition, coverage under an employer-sponsored plan is affordable to a particular employee if the employee’s required contribution to the plan does not exceed 9.5% of the employee's W-2 wages. The safe harbor would allow employers to prospectively and more accurately make a determination of the “affordability” threshold of their group insurance offerings.
The proposed rule is open to public comment, which must be submitted to the IRS by December 13, 2011.
Last spring, the IRS released Notice 2011-36, a request for public comment intended to jump-start regulatory guidance of the shared employer responsibility provision in Section 4980H of the Internal Revenue Code (with an effective date of January 1, 2014). Section 4980H mandates that employers with 50 or more full-time employees be liable for a “shared responsibility” assessable payment of $3,000 if any full-time employee is certified to receive a premium tax credit or cost-sharing reduction if the employer:
New Proposed Rule
In an attempt to address the issues raised by the comments, the IRS recently released Notice 2011-73 (2011-21 I.R.B. 792) – Request for Comments on Health Coverage Affordability Safe Harbor for Employers (Section 4980H). This recent notice is a request for public comment on a series of proposed IRS rules designed to clarify the employer requirements and provide a safe harbor to employers offering employer-sponsored health insurance to their employees.
The new rule addresses several key issues. For example, the proposed rules appear to confirm what many benefits specialists were predicting - that Section 4980H only applies to full-time employees, not to dependents. If the proposed rule becomes effective, employers will not have to pay the shared responsibility penalty if dependents choose to not participate in the employer-sponsored health insurance program.
The proposed rule also simplifies the test for providing “affordable” health insurance to employees. As long as the employee contribution remains at or below 9.5% of the employee’s wage paid by the employer, the employer-sponsored health insurance benefit will be deemed “affordable” and will not subject the employer to the $3,000 shared responsibility penalty. This is a significant improvement over the previous speculation that the 9.5% affordability level would be applied to the household income of the employee, and would have required the employer to monitor the household incomes of its employees.
On another employer tax matter related to PPACA, see BenefitMall’s previous blog on PPACA Small Business Tax Credits published earlier this year.
Comments on the proposed rule may be submitted three ways:
The deadline for comments is December 13, 2011. Remember your comments will become part of the public record and are not confidential.
Please visit www.BenefitMall.com to view past Legislative Alerts. Or, you may visit www.HealthcareExchange.com for blog posts, polls, surveys and numerous resources.
The views expressed in this Legislative Alert do not necessarily reflect the official policy, position, or opinions of BenefitMall. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal and tax matters discussed herein.
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