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A proposed safe harbor from penalty fees for employers with low-income employees receiving premium tax credits, if the employer provides affordable coverage
The U.S. Treasury Department and Internal Revenue Service issued Notice 2011-73on Sept. 13, 2011, requesting comments on a proposed affordability safe harbor for employers under the Patient Protection and Affordable Care Act (PPACA).
Under the PPACA, effective Jan. 1, 2014, larger employers will have to pay a penalty if they don't provide comprehensive, affordable health insurance coverage to their employees (referred to as the "shared responsibility" provision):
• Employers with 50 or more full-time employees that do not offer coverage and have at least one full-time employee who receives a premium tax credit will be assessed a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment.• Employers with 50 or more full-time employees that do offer coverage but have at least one full-time employee receiving a premium tax credit will pay the lesser of $3,000 for each employee receiving a premium credit or $2,000 for each full-time employee, excluding the first 30 employees from the assessment.
• Employers with 50 or more full-time employees that do not offer coverage and have at least one full-time employee who receives a premium tax credit will be assessed a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment.
• Employers with 50 or more full-time employees that do offer coverage but have at least one full-time employee receiving a premium tax credit will pay the lesser of $3,000 for each employee receiving a premium credit or $2,000 for each full-time employee, excluding the first 30 employees from the assessment.
Notice 2011-73 solicits public comments on a proposed safe harbor, designed to make it easier for employers to determine whether the health coverage they offer is affordable. To that end, the Treasury and IRS expect to propose a safe harbor permitting employers that offer coverage to their employees to measure the affordability of that coverage by using wages that the employer paid to an employee, instead of the employee’s household income. This contemplated safe harbor would apply only for purposes of the "employer shared responsibility" provision, and would not affect employees’ eligibility for health insurance premium tax credits.
Under a proposed rule regarding the health insurance premium tax credit, published in the Aug. 17, 2011, Federal Register, qualifying individuals and families who do not elect to receive affordable coverage through an employer-provided health care plan would receive premium tax credits to help defray insurance costs beginning in 2014. To be eligible for the premium tax credit, a taxpayer must have household income between 100 percent and 400 percent of the federal poverty level amount for his or her family size ($22,350 to $89,400 for a family of four in 2011). In addition, the taxpayer must not be claimed as a dependent by another taxpayer and, if married, must file a joint return. (This Treasury release has more on how the premium tax credit works.)
A Safe Harbor for Employers
Under the proposed rule, a safe harbor would be available in which an employer that offers full-time employees and their dependents the opportunity to enroll in eligible employer-sponsored coverage would not be subject to a penalty with respect to an employee who receives a premium tax credit for a taxable year. The safe harbor applies if the employee portion of the self-only premium for the employer’s lowest-cost plan that provides minimum value does not exceed 9.5 percent of the employee’s current W-2 wages from the employer.
Prior to this proposed rule, there were concerns that penalty avoidance under the PPACA would be based on the employee premium not exceeding 9.5 percent of the employee's household income. Giving employers the ability to base their affordability calculations on their employees’ wages (which employers know) instead of employees’ household income (which employers generally do not know) is intended to provide a more workable and predictable method of ensuring affordable employer-sponsored coverage.
Notice 2011-73 provides three ways to submit comments on the proposed safe harbor:
• E-mail to: Notice.Comments@irscounsel.treas.gov. Include “Notice 2011-73” in the subject line.
• Mail to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2011-73), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
• Hand deliver to: CC:PA:LPD:PR (Notice 2011-73), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.
The deadline for comments is Dec. 13, 2011.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
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