Alert
Alert
02.25.14
On February 10, 2014, the Internal Revenue Service (“IRS”) published long-awaited regulations (the “Final Regulations”) on the employer shared responsibility provisions – or “Pay or Play” – under the Patient Protection and Affordable Care Act. The Final Regulations provide two particularly important pieces of transitional relief to employers: (1) Pay or Play is delayed for many employers with 50-99 employees until 2016, and (2) large employers subject to Pay or Play in 2015 need only offer coverage to 70% of full-time employees to avoid assessments. The Final Regulations also include the final rules for complying with Pay or Play. These will allow employers to now move forward with implementing a strategy to comply with Pay or Play.
Pay or Play
Under the Affordable Care Act, “large employers” with at least 50 full-time employees (including full-time equivalents) are subject to Pay or Play. Pay or Play requires large employers to either offer affordable coverage of minimum value to 95% of its full-time employees and their dependents or pay a substantial assessment. The assessment can take two forms. If a large employer does not offer coverage during the calendar year to at least 95% of its full time employees and their dependents, it will owe an amount equal to the number of full-time employees employed for the year (minus 30), multiplied by $2,000, if at least one full-time employee obtains coverage under a state health insurance marketplace and receives a premium tax credit. If an employer offers coverage to at least 95% of its full-time employees, but that coverage does not meet certain affordability or minimum value standards, and the employer has one or more full-time employees who obtain coverage under a state health insurance marketplace, the employer will owe an amount equal to the number of full-time employees who receive a premium tax credit for their coverage from the marketplace, multiplied by $3,000.
Transition Relief
The Final Regulations provide two particularly important pieces of transitional relief for large employers:
Pay-or-Play Delayed for Many Employers with 50-99 Employees. Pay or Play is delayed for employers with 50-99 full-time employees (including full-time equivalents) for all of 2015 and, in the case of any non-calendar plan year that begins in 2015, the portion of the 2015 plan year that falls in 2016.
To qualify for this transition relief, an employer must satisfy the following requirements:
Employers in this group must still comply with the reporting requirements for health-insurance information under the Affordable Care Act for 2015. The IRS indicates that it will issue final regulations shortly on the reporting requirements.
No Penalties for Large Employers in 2015 that Offer Coverage to 70% of Full-Time Employees. Large employers that continue to be subject to the Pay or Play mandate in 2015 need to offer coverage to only 70% of their full-time employees (and their dependents, if applicable) during 2015 (and, for non-calendar year plans, any calendar month during the 2015 plan year that falls in 2016) to avoid penalties. This is a reduction from the 95% offer-of-coverage requirement that will apply in later years.
Other Transition Guidance
Other transition relief included in the proposed regulations on the Pay or Play mandate that were issued in December 28, 2012 (the “Proposed Regulations”) has been extended in the Final Regulations:
Clarifications and Additional Guidance in the Final Regulations
The Final Regulations also provide additional clarifications and new guidance – much of which is based on comments on the Proposed Regulations – for determining whether an entity is a “large employer” subject to the Pay or Play mandate, identifying which employees are full-time and must be offered coverage, affordability of coverage safe harbors, and calculating any penalty payments that may be due. The Final Regulations address the following issues, among many others:
No later than July 1, 2014, each employer needs to have controls in place to identify whether it is a “large employer” and, if it is a “large employer,” consider how to implement the new rules under the Final Regulations and capture the necessary data to identify its full-time employees. Pillsbury’s benefits advisers can help an employer properly implement the rules under the Final Regulations that apply to its unique circumstances.
This material is not intended to constitute a complete analysis of all tax considerations. Internal Revenue Service regulations generally provide that, for the purpose of avoiding United States federal tax penalties, a taxpayer may rely only on formal written opinions meeting specific regulatory requirements. This material does not meet those requirements. Accordingly, this material was not intended or written to be used, and a taxpayer cannot use it, for the purpose of avoiding United States federal or other tax penalties or of promoting, marketing or recommending to another party any tax-related matters.