What Employers are at Risk ?
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Employers that meet the definition of “an
applicable large employer.”
First layer:
Are you an “Applicable Large Employer?”
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An applicable large employer is one
(including predecessors) that has
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50 or more
full-time or
“full-time equivalent”
Employees
in the preceding calendar year
or reasonably expects to have that many in the
current year, if the employer has not existed in
previous calendar years.
IRC Section 414(b),(c),(m) or (o)—the
Aggregation Rule for Employers — applies.
If the employer’s workforce consists of 50 or more
“seasonal workers”
for 120 days or less during the calendar year, then
it is not considered an “applicable large employer.”
A seasonal worker is defined by the Secretary of
Labor and includes retail workers employed
exclusively during holiday seasons.
A “full-time equivalent employee” (FTE) is a
fictitious employee who is identified by an
adding the total number of non-full time
employees monthly hours together and
dividing the total number of hours by 120.
The result is the number of FTEs for the month.
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The applicable large employer shared responsibility
excise tax under the ACA is triggered by one of two
types of actions:
“NO OFFER” OF INSURANCE to any full-time employee
OR
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“UNAFFORDABLE” INSURANCE OFFERED
and
A full-time employee buys health insurance on a
state exchange with premium assistance.
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For purposes of calculating the tax, a different fulltime employee calculation is made that does not
include FTEs.
For purposes of the tax calculation, full-time
employees who work at least 30 hours of service per
week are considered. For this purpose, proposed
regulations are expected to provide (as stated in
Notice 2011-36) that 130 hours of service in a
calendar month would be treated as the monthly
equivalent of 30 hours of service per week.
What is a part-time employee?
An employee that is not considered a full-time
employee or a seasonal employee.
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i.
The applicable large employer
ii. does not offer to its full-time employees (and their
dependents) the opportunity to enroll in minimum essential
coverage under an eligible employer sponsored plan,
and
iii. one or more of its full-time employees buys health
insurance on an exchange with premium assistance, then it
iv. pays a non-deductible tax equal to the number of full-time
employees for each month that it fails to offer such coverage:
$167 x (# full-time employees - 30).
Annualized the tax is $2000 x (# full-time employees - 30).
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It is any employer-sponsored plan, but may not consist solely of
“excepted benefits” under. Excepted benefits include:
1) Coverage only for accident, or disability income insurance,
or any combination thereof
2) Coverage issued as a supplement to liability insurance
3) Liability insurance, including general liability insurance and
automobile liability insurance
4) Workers' compensation or similar insurance
5) Automobile medical payment insurance
6) Credit-only insurance
7) Coverage for on-site medical clinics
8) Other similar insurance coverage, specified in regulations,
under which benefits for medical care are secondary or incidental
to other insurance benefits
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i.
The applicable large employer
ii.
offers its full-time employees (and their dependents) the opportunity to
enroll in minimum essential coverage under an eligible employer-sponsor plan
that is either:
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a. unaffordable relative to an employee’s household income, or
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b. does not provided minimum value, and
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iii.
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one or more of its full-time employees buys health insurance on
exchange with premium assistance, then it
an
iv.
pays a non-deductible tax for equal to the number of full-time employees
that receive premium assistance for each month equal to: $250 x (# of full-time
employees receiving premium assistance) or the “NO OFFER” penalty, whichever is
less.
Annualized the tax is $3,000 per employee receiving premium assistance.
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If the employer offers minimum essential
coverage, are they still liable for the excise
tax?
Yes, if the employer has one or more fulltime employees certified to the employer by
the state exchange as having qualified for a
premium tax credit or cost-sharing reduction
and the health insurance is not affordable or
the plan does not provide minimum value.
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Louisiana will not establish a State exchange and it has rejected
the Medicaid expansion. There is some question whether
premium assistance will be available to any Louisiana employee
since the Internal Revenue Code only allows premium assistance
under Section 36B to those enrolled “through an Exchange
established by the State under 1311 of the” ACA.
The IRS has indicated that premium assistance will be available
either as a tax credit or cost reduction to those who are enrolled
in the Federal Exchange, but this is an unsettled area.
Any employee of the employer with a household income at or
between 100% and 400% of the poverty level is eligible for
subsidized coverage if the employee was offered no coverage or
the coverage was unaffordable or lacked minimum value.
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The employee will only qualify if:
1) The employee has a household income between
100% and 400% of the poverty level AND
2) Either the coverage offered is not “affordable” or
such coverage fails to provide “minimum value.”
So assuming Louisiana employees are eligible for
premium assistance and you offer a plan, only if you
have employees with a household income of between
100% to 400% of the poverty level are you at risk for
the tax and then, only if your plan is “unaffordable” or
does not provide “minimum value.”
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The coverage is deemed unaffordable if the
employee’s required contribution, which is the
monthly premium payment to the employersponsored plan for self-only coverage, exceeds
9.5% of household income. The IRS provides a
safe-harbor that the employer can use, instead of
household income, the employee’s wages
reported on Box 1 of the employee’s W-2 to
determine whether the self-only coverage is
affordable.
Coverage thus is affordable if it is below 9.5% of
the employee’s W-2 wage for self-only coverage.
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When it pays at least 60% total costs for the plan
benefits, without regard to employee premium
contributions, based on an actuarial standard.
Employee premium contributions include the
employee’s portion of the premium, co-pays, coinsurance, and deductibles.
We are awaiting guidance on how minimum value
is determined and on minimum value safe
harbors that the IRS may offer employers.
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Monthly. A monthly review of full-time
status, the IRS recognizes, is burdensome. It
has proposed two safe-harbor approaches —
one for on-going employees and one for
newly-hired employees— that do not require
monthly review.
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1.
STANDARD MEASUREMENT PERIOD: The employee will be measured for a
preceding period selected by the employer of not less than 3 months and not
more than 12 months to determine whether the employee averaged at least 30
hours per week (130 hours per month). The start and end date is flexible. This
period must be uniform as to all employees within the same category. For
example, the same period for all hourly employees. This period determines how
the employee will be classified for the future “stability period” with no penalty
even if the actual hours would otherwise change the status.
2.
STANDARD ADMINISTRATIVE PERIOD: this period can be no longer than 90
days and may be used by the employer to make eligibility determinations. 90 days
is the longest waiting period permissible for eligibility to participate under the
plan according to the ACA. This period may not be used to reduce or lengthen the
measurement or stability periods, and it must overlap with the prior stability
period to avoid coverage gaps.
3.
STANDARD STABILITY PERIOD: This is the period in which employees are
treated as identified during the measurement period with no tax risk even if hours
change. For employees identified in the measurement period as full-time, this
period must be NO SHORTER than the longer of: (6) calendar months or the
standard measurement period. For employees identified as part-time in the
measurement period, the standard stability period can be no longer than the
standard measurement period.
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1. Is the new employee, at his or her start date,
reasonably expected to work full-time throughout
the measurement period? If the employee is offered
coverage on or before the end of the initial three
calendar months of employment, then the employee
is not liable for taxes for failure to offer coverage for
the period prior to the offer.
2. Is the new employee a variable hour or seasonal
employee? Does the employer only offer coverage to
full-time employees and the employer does not
reasonably expect that the employee will work fulltime throughout the measurement period? If the
answer to both of these questions is yes, the
following SAFE HARBOR applies.
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1.
INITIAL MEASUREMENT PERIOD: The hours completed by a new
employee will be measured for a period selected by the employer of not
less than 3 months and not more than 12 months to determine whether
the employee averaged at least 30 hours per week (130 hours per
month).
2.
STANDARD ADMINISTRATIVE PERIOD: this period can be no longer
than 90 days and may be used by the employer to make eligibility
determinations. 90 days is the longest waiting period permissible for
eligibility to participate under the plan according to the ACA.
3.
STANDARD STABILITY PERIOD: For employees determined to be
full-time during the initial measurement period, this is the period must
be the same as for on-going employees and begins after the initial
measurement period. For employees determined not to be full-time
during the initial measurement period, the stability period for this
employee cannot be more than one month longer that the initial
measurement period, and must not exceed the remainder of the
standard measurement period (plus any associated administrative
period) in which the initial measurement period ends.