IRS Answers Questions about the Affordable Care Act

This year employers will have to start determining if they qualify for the Affordable

Care Act.

Do you understand the details involved to be qualified in 2015?

We have compiled the Q&A’s the IRS has issued to update you on some of these details.

What are the Employer Shared Responsibility provisions? When do they go into effect?

For 2015 and later, employers with at least 50 full-time or a combination of full-time and part-time employees that are the equivalent to 50 full-timers, will be subject to the Employer Shared Responsibility provisions under the employer mandate.

?

An employer that meets the 50 full-time employee threshold is referred to as an applicable large employer. If these employers don’t offer affordable health insurance that provides a minimum level of coverage to their full-timers (and their dependents), the employer maybe subject to an Employer Shared Responsibility payment if at least one of its full-time employees receives a premium tax credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges (Health Insurance Marketplace).

The Shared Responsibility provisions aren’t effective until January 1st, 2015, meaning no payments will be assessed for 2014.

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 percent of his or her annual household income, the coverage is not considered affordable. Because employers generally won’t know their employees’ household incomes, employers can take advantage of one or more of the three affordability safe harbors set forth in the final regulations that are based on information the employer will have available.

?

These safe harbors are all optional. An employer may use one or more of them only if the employer offers its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that provides minimum value for the self-only coverage offered to the employee.

OPTION 2

1

2

3

The Form W-2 wages safe harbor;

The rate of pay safe harbor, and

The federal poverty line safe harbor.

Affordability Safe Harbors

How does an Employer not in existence the preceding calendar year determine if it has enough employees to be subject to the Shared Responsibility provisions?

An employer not in existence on any business day in the prior calendar year is considered an applicable large employer in the current year if the employer is reasonably expected to employ an average of at least 50 full-time employees, on business days during the current calendar year and it actually employs an average of at least 50 full-time employees on business days during the calendar year.

For the next year, however, the employer will determine its status as an applicable large employer using the rules that generally apply (that is, based on the number of full-time employees and full-time equivalents that the employer employed the preceding year.

?

If two or more companies have a common owner or are otherwise related, are they combined for purposes of determining whether they employ enough employees to be subject to the Shared Responsibility Provisions?

Yes, Section 498H includes a longstanding provision that also applies for other tax employee benefit purposes. Under it, companies with a common owner or that are otherwise related generally are combined and treated as a single employer. So they would be combined for purposes of determining whether or not they collectively employ at least 50 full-time employees. If the combined total meets the threshold, then each separate company is subject to the Shared Responsibility provisions, even those that individually do not employ enough people to meet the threshold.

?

Do the Employer Shared Responsibility provisions apply only to large employers that are for-profit businesses?

All employers that are applicable large employers are subject to the Shared Responsibility provisions, including for-profits, not-for-profits, and government entities (federal, state, local, and Indian tribal government employers).

?

Do the Employer Shared Responsibility provisions apply in states where a federally-facilitated Exchange (Marketplace) has been established on behalf of the state?

Yes. An applicable large employer is subject to a Shared Responsibility payment if at least one of its full-time employees receives a premium tax credit. A premium tax credit is only available to eligible individuals who obtain coverage through a Marketplace, which includes a State Based Exchange, regional Exchange, subsidiary Exchange, or the federally-facilitated Exchange established on behalf of a state.

?

Do the Shared Responsibility provisions apply to employers with full-time employees who are eligible for health coverage through other sources, such as Medicare, Medicaid, or spouses’ employers?

Employees who are eligible for Medicare or Medicaid are

not eligible for a premium tax credit. If no full-time employee receives a premium tax credit (for example, because all of an employer’s full-time employees are eligible for Medicare or Medicaid), the employer will not be subject to a Shared Responsibility payment.

?

How does an employer identify full-time employees for purposes of the Shared Responsibility provisions?

The number of full-time employees matters both for purposes of whether the Employer Shared Responsibility provisions apply and whether a Shared Responsibility payment is owed by an employer (as well as the amount). An employer identifies its full-time employees based on each employees hours of services.

An employee is considered full-time if they average at least 30 hours of service a week.

?

The monthly measurement method under which an employer determines each employees status as a full-time employee by counting the employees hours of service for each month (130 hours of service in a calendar month).

The look –back measurement method under which an employer may determine the status of an employee as full-time during a future period (referred to as the stability period), based upon the hours of service of the employee in a prior period (referred to as the measurement period). The look-back method for identifying full-time employees is available only for purposes of determining and computing liability for an Employer Shared Responsibility payment, and not for purposes of determining if the employer is a large employer.

1

2

Two measurement methods provided to determine whether an employee has sufficient hours to be a full-time employee:

Are companies with employees working outside the U.S subject to the Employer Shared Responsibility provisions?

To determine whether an employer is an applicable large employer, you generally take into account only work performed in the U.S.

For example, if a foreign employer has a large workforce worldwide, but fewer than 50 full-time employees, in the U.S., the foreign employer generally wouldn’t be subject to the Shared Responsibility provisions.

?

The IRS has answered, butremember the Shared Responsibility

provisions aren’t effective until January 1, 2015.

Call Us Today for a Complimentary Consultation.1-866-730-6938

PDR Certified Public Accountants isa full-service accounting firm, dedicated to delivering valuable solutions to our clients.