The Internal Revenue Service (IRS) is trying to free employers from a Patient Protection and Affordable Care Act (PPACA) provision that otherwise could force them to track group health plan participants’ household income.
The IRS is asking for reactions to a proposed PPACA affordability provision safe harbor in IRS Notice 2011-73.
If PPACA takes effect as written and works as expected, an employer responsibility provision will require employers over a minimum size to provide major medical coverage or else pay a penalty.
Internal Revenue Code Section 4980H, a section added to the code by PPACA Section 1513, states that an employer will have to pay a penalty, even if it provides group health coverage, if the cost of an employee’s required contribution for coverage exceeds 9.5% of the employee’s household income for the taxable year.
Employers and others have pointed out that employers often have no way of knowing what the employee’s total income is, let alone what the employee’s household’s household income is, officials say in the notice.
The IRS safe harbor would let employers base affordability calculations on an employee’s Form W-2 wages rather than on the employee’s household income.
“Application of this safe harbor would be determined after the end of the calendar year and on an employee-by-employee basis, taking into account the W-2 wages and the employee contribution,” officials say. “So, for example, the employer would determine whether it met the proposed affordability safe harbor for 2014 for an employee by looking at that employee’s W-2 wages for 2014 and comparing 9.5% of that amount to the employee’s 2014 employee contribution.”
Comments on the proposed safe harbor are due Dec. 13.