Shared Responsibility Requirements

On January 1, 2015, the shared responsibility provision will take effect. This section discusses who will be subject to the shared responsibility provision and how the payment will be calculated.

Are small employers that don’t offer health insurance required to pay a penalty?

Most small businesses are exempt. Employers with fewer than 50 FTEs are not subject to the shared responsibility (or “free rider”) provision that takes effect January 1, 2015. If you have at least 50 FTEs but no employee receives an individual premium tax credit or cost-sharing reductions (both based on income), there’s no penalty—whether or not you offer health insurance.

How are employees counted under the shared responsibility requirement?

A business is defined as “large” if it has at least 50 FTEs, not counting seasonal workers. Full-time employees are those who work 30 hours or more per week; part-time employees work less than 30 hours per week, figured on a monthly basis. This calculation involves taking the total number of hours worked divided by 120. Also, the first 30 employees are subtracted from the total when calculating the total amount of the assessment.

How is the shared responsibility payment calculated?

If you have at least one full-time employee who receives a premium tax credit or cost-sharing reductions under the health plan that he or she is enrolled in through the state insurance exchange, the payment assessed depends on whether or not you offer health coverage.

When an employer doesn’t offer health insurance

If the employer does not offer coverage, and at least one full-time employee receives a premium tax credit or cost-sharing reductions, the business must pay $2,000 for each full-time employee, not counting the first 30 employees.

Example:

An employer with 51 employees who doesn’t offer health insurance and has one employee who receives an individual tax credit or cost-sharing reductions will be assessed $42,000 ($2,000 multiplied by 21).

When an employer does offer health insurance

If the employer does offer coverage, and at least one full-time employee receives a premium tax credit or cost-sharing reductions because the coverage offered is determined “inadequate” or “unaffordable,” the employer will be required to pay $3,000 for each employee who receives assistance or $2,000 per full-time employee (not counting the first 30 employees), whichever is less.

Example:

An employer with 51 employees who offers coverage but has one employee who receives an individual tax credit or cost-sharing reductions will be assessed $3,000
($3,000 x 1).

For an employer that offers coverage for some months but not others during the calendar year, the payment is computed separately for each month for which coverage was not offered. The amount of the payment for the month equals the number of full-time employees for the month (minus up to 30) multiplied by 1/12 of $2,000. If the employer is related to other employers, then the 30-employee exclusion is allocated among all the related employers. The payment for the calendar year is the sum of the monthly payments computed for each month for which coverage was not offered. After 2015, these rules apply to employers that do not offer coverage or that offer coverage to less than 95% of their full time employees and the dependents of those employees.

How does an employer know whether the coverage it offers is affordable?

If an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5% of that employee’s annual household income, the coverage is not considered affordable for that employee. If an employer offers multiple healthcare coverage options, the affordability test applies to the lowest-cost option available to the employee that also meets the minimum value requirement (see question 12, below.) Because employers generally will not know their employees’ household incomes, employers can take advantage of one of the affordability safe harbors set forth in the proposed regulations. Under the safe harbors, an employer can avoid a payment if the cost of the coverage to the employee would not exceed 9.5% of the wages the employer pays the employee that year, as reported in Box 1 of Form W-2, or if the coverage satisfies either of two other design-based affordability safe harbors.

How does an employer know whether the coverage it offers provides minimum value?

A minimum value calculator will be made available by the IRS and the Department of Health and Human Services (HHS). The minimum value calculator will work in a similar fashion to the actuarial value calculator that HHS is making available. Employers can input certain information about the plan, such as deductibles and co-pays, into the calculator and get a determination as to whether the plan provides minimum value by covering at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan.

If an employer wants to be sure it is offering coverage to all of its full-time employees, how does it know which employees are full-time employees?

The proposed regulations provide a method to employers for determining in advance whether or not an employee is to be treated as a full-time employee, based on the hours of service credited to the employee during a previous period. Using this look-back method to measure hours of service, the employer will know the employee’s status as a full-time employee at the time the employer would offer coverage. The proposed regulations are consistent with IRS notices that have previously been issued and describe approaches that can be used for various circumstances, such as for employees who work variable hour schedules, seasonal employees, and teachers who have time off between school years.

How will an employer know that it owes a shared responsibility payment?

The IRS will contact employers to inform them of their potential liability and provide them an opportunity to respond before any liability is assessed or notice and demand for payment is made. The contact for a given calendar year will not occur until after employees’ individual tax returns are due for that year claiming premium tax credits and after the due date for employers that meet the 50 full-time employee (plus full-time equivalents) threshold to file the information returns identifying their full-time employees and describing the coverage that was offered (if any).

How will an employer make a shared responsibility payment?

If it is determined that an employer is liable for a shared responsibility payment after the employer has responded to the initial IRS contact, the IRS will send a notice and request for payment. That notice will instruct the employer on how to make the payment. Employers will not be required to include the shared responsibility payment on any tax return that they file.

The health plan that I offer runs on a fiscal plan year that starts in 2014 and will run into 2015. Do I need to make sure my plan complies with these new requirements in 2014 when the next fiscal plan year starts?

For an employer that as of December 27, 2013, already offered health coverage through a plan that operates on a fiscal year (a fiscal year plan), transition relief is available. First, for any employees who were eligible to participate in the plan under its terms as of December 27, 2013 (whether or not they took the coverage), the employer will not be subject to a potential payment until the first day of the fiscal plan year starting in 2015. Second, if (a) the fiscal year plan (including any other fiscal year plans that have the same plan year) was offered to at least one third of the employer’s employees (full-time and part-time) at the most recent open season or (b) the fiscal year plan covered at least one quarter of the employer’s employees, then the employer also will not be subject to the shared responsibility payment with respect to any of its full-time employees until the first day of the fiscal plan year starting in 2015, provided that those full-time employees are offered affordable coverage that provides minimum value no later than that first day.

So, for example, if during the most recent open season preceding December 27, 2013, an employer offered coverage under a fiscal year plan with a plan year starting on July 1, 2014 to at least one third of its employees (meeting the threshold for the additional relief), the employer could avoid liability for a payment if, by July 1, 2015, it expanded the plan to offer coverage satisfying the shared responsibility provisions to the full-time employees who had not been offered coverage. For purposes of determining whether the plan covers at least one quarter of the employer’s employees, an employer may look at any day between October 31, 2013 and December 27, 2013.

Is transition relief available to help employers that are close to the 50 full-time employee threshold determine their options for 2015?

Yes. Rather than being required to use the full twelve months of 2014 to measure whether it has 50 full-time employees (or an equivalent number of part-time and full-time employees), an employer may measure using any six-consecutive-month period in 2014. So, for example, an employer could use the period from January 1, 2014, through June 30, 2014, and then have six months to analyze the results, determine whether it needs to offer a plan, and, if so, choose and establish a plan.

When can an employee receive a premium tax credit?

Premium tax credits generally are available to help pay for coverage for employees who are between 100% and 400% of the federal poverty level and enroll in coverage through an Affordable Insurance Exchange, are not eligible for coverage through a government-sponsored program like Medicaid or CHIP, and are not eligible for coverage offered by an employer or are eligible only for employer coverage that is unaffordable or that does not provide minimum value.

If an employer does not have enough employees to be subject to the shared responsibility provisions, does that affect their employees’ eligibility for a premium tax credit?

No. The rules for how eligibility for employer-sponsored insurance affects eligibility for the premium tax credit are the same, regardless of whether the employer has enough employees to be subject to the shared responsibility provisions.