Employer Shared Responsibility Penalty

Certain employers are subject to the employer shared responsibility provisions under the ACA. Under these provisions, such employers may be penalized for: 1) not providing minimum essential coverage to their full-time employees and dependents, or 2) not providing coverage that is affordable and that provides minimum value.

 

Employer Shared Responsibility Penalty

On February 10, 2014, the Internal Revenue Services (IRS) and the Department of the Treasury issued a final rule implementing the employer shared responsibility requirements under section 4980H of the Internal Revenue Code.

 

What Information Must Be Submitted to IRS about Health Insurance?

Beginning in 2014 (and on or before January 31 of each subsequent year), insurers and/or employers (if self funded) who provide minimum essential coverage to individuals during a calendar year must submit the following information to the Treasury:

  • Name, address and tax identification number of the primary insured and the name of each dependent covered;
  • Dates during which the individual(s) was covered under minimum essential coverage;
  • Whether the coverage is a qualified health plan offered through an Exchange;
  • The amount (if any) for premium credits and any cost-sharing subsidies; and
  • Any other information required by the Treasury.

 

What do you need to submit if employer provides health insurance coverage?

If essential health benefits coverage is sponsored by an employer, the following information must also be submitted:

  • Name, address and employer identification number of the employer maintaining the group health plan;
  • Portion of the premium (if any) required to be paid by the employer; and
  • If the health insurance coverage is a qualified health plan in the small group market offered through an Exchange, any other information the Treasury may require for administration of the tax credit for employee health insurance expenses of small employers

 

What constitutes “affordable” coverage?

  • Coverage that would cost an employee more than 9.5 percent of their annual household income is considered unaffordable.
  • Three optional safe harbors exist to assist the employer in determining affordability: Form W-2 wages safe harbor, rate of pay safe harbor and federal poverty line safe harbor.

 

What constitutes coverage that provides minimum value?

  • A plan that covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan is considered to provide minimum value
  • The HHS and the IRS have published various methods that may be utilized to determine minimum value

 

What triggers a 4980(H) penalty?

  • A 4980(H) penalty may be triggered if at least one of an applicable large employer’s full-time employees receives a premium tax credit through the marketplace
  • If no full-time employee receives a premium tax credit, the employer will not be subject to an employer shared responsibility payment
  • An employer subject to the employer responsibility provisions is an “applicable large employer”. An applicable large employer employs on average at least 50 full-time employees (including full-time equivalents) during the preceding calendar year.
  • The final rule includes transitional relief for purposes of the applicable large employer determination for the 2015 calendar year, which allows employers the option to determine their status by reference to a period of at least six consecutive calendar months in the 2014 calendar year.
  • All employees are counted (with a limited exception for certain seasonal workers) for determining status, including those exempt from the Individual Shared Responsibility provision and those eligible for other coverage such as Medicare or Medicaid.