Employer Mandate

<div class="Section1"><em>Editor's Note:</em> The SECURE Act repealed the Cadillac tax entirely late in 2019. The tax, discussed below, never went into effect.</div><br /> <div class="Section1"><br /> <br /> Preliminary IRS guidance indicated that many types of employer-provided health benefits (in addition to traditional health insurance premiums) would be counted in determining whether the employer would be subject to the ACA "Cadillac tax" on high cost health coverage. An employer was to become liable if it offered employer or salary reduction contributions to a health savings account (HSA) or health flexible spending account (FSA) that it administers.<br /> <br /> Pre-tax contributions to HSAs were likely to be included in determining whether an employee's health coverage was subject to the Cadillac tax, but an employee's after-tax contributions were not included in the calculation.<br /> <br /> The cost of health FSAs, Archer MSAs, HRAs, retiree coverage and multi-employer plan coverage were also expected to be included when calculating whether the threshold that triggers the Cadillac tax was crossed.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  Notice 2015-16.<br /> <br /> </div>

<div class="Section1">For purposes of the premium assistance tax credit (<em><em>see</em></em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8849">8849</a>), employer-provided health coverage is deemed to be &ldquo;affordable&rdquo; if the taxpayer&rsquo;s required contribution toward the annual premium cost of self-only coverage does not exceed 9.02&nbsp;percent (as indexed for inflation for 2025, the amounts were 8.36 percent in 2024, 9.12&nbsp;percent in 2023, 9.61&nbsp;percent in 2022, 9.83&nbsp;percent in 2021, 9.78&nbsp;percent in 2020, and 9.86&nbsp;percent in 2019) of the taxpayer&rsquo;s household income (<em><em>see</em></em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8850">8850</a>).<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> <hr><br /> <br /> <strong>Planning Point:</strong> From a practical perspective, the increase in the affordability threshold means that the employer can require employees to contribute more and still avoid ACA penalties under the employer mandate.<br /> <br /> <hr><br /> <br /> Any additional premium contributions that the taxpayer is required to make for family coverage are not included in determining whether the health coverage is affordable.<br /> <br /> <hr><br /> <br /> <strong>Planning Point:</strong> So far, the IRS has yet to provide guidance on whether employers will be subject to new obligations under the now-final regulations that would fix the so-called &ldquo;family glitch&rdquo; for determining affordability under the ACA. The final regulations provide that the affordability of employer-sponsored coverage for the employee&rsquo;s family would be based on the amount the employee would be required to pay to cover both the employee and eligible family members, rather than the individual employee alone. Under the new rule, family members are disqualified only if the cost of family coverage is less than the annual threshold. &ldquo;Family coverage&rdquo; means any employer plan that covers related individuals other than the employee (including self-plus-one plans). The regulations also create a separate minimum value rule for family members, so that they do not lose premium tax credit eligibility if the employer plan does not provide minimum value to the family members (regardless of cost). The regulations are effective for tax years beginning after December 31, 2022.<br /> <br /> <hr><br /> <br /> There currently is not any new mandate for employers, so the employer&rsquo;s obligations and penalty exposure would continue to be based on whether the employee&rsquo;s self-only coverage is deemed affordable. However, it is possible that employers could become subject to additional reporting requirements in order to determine whether the health plan is affordable at the family level.<br /> <br /> If an employer offers multiple health plan options, the affordability test applies to the lowest cost plan in which the taxpayer is eligible to participate.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect;&nbsp;36B(c)(2)(C)(i); Rev. Proc. 2020-36.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; IRS Questions and Answers on the Premium&nbsp;Tax Credit, Question 11, available at https://www.irs.gov/affordable-care-act/individuals-and-families/questions-and-answers-on-the-premium-tax-credit (last accessed September 28, 2024).<br /> <br /> </div></div><br />

<div class="Section1">Employer-sponsored health coverage provides "minimum value," so that it also provides minimum essential coverage, if the plan covers at least 60 percent of the total allowed costs of benefits provided under the plan.<a href="#_ftn1" name="_ftnref1">¹</a> Beginning in 2014, an employer that offers health coverage to its employees is required to provide each employee with a Summary of Benefits and Coverage, which is a document that explains the benefits provided under the plan and must also include a statement as to whether the plan provides minimum value.</div><br /> <div class="Section1"><br /> <br /> The Department of Health and Human Services and the IRS have provided guidance stating that a health plan that does not cover substantial hospital and physician services will not provide minimum value, and cannot satisfy an applicable large employer's obligation to provide health coverage to avoid the shared responsibility penalties.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> If an employee enrolls in a plan that does not provide minimum value, that employee is ineligible to claim the premium assistance tax credit even though the plan fails to provide the required coverage.<br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  IRC § 36B(c)(2)(C)(ii).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.  Notice 2014-69, 2014-48 IRB 903.<br /> <br /> </div>

For purposes of the premium assistance tax credit, employer-provided health coverage is deemed to be "affordable" if the taxpayer's required contribution toward the annual premium cost of self-only coverage does not exceed 10.22 percent (as indexed for inflation for 2027) of the taxpayer's household income.

<div class="Section1">Yes. However, in order to be counted as a full-time employee, an employee must be paid for his or her services—as a result, unpaid interns will <em>not</em> be counted as employees in determining whether an employer is subject to the shared responsibility provisions. An intern who is paid, however, will be counted in the same manner as any other employee.<a href="#_ftn1" name="_ftnref1">¹</a> Therefore, a paid intern who works an average of 30 hours per week must be offered health coverage within the period of time that it would be offered to any other full-time employee.</div><br /> <div class="Section1"><br /> <br /> If the intern can legitimately be categorized as a seasonal employee (i.e, his or her duties are commonly only accomplished during a particular season), the employer may avoid offering health coverage to that intern. The employer can also avoid responsibility for offering health coverage to interns if the hours of those interns are capped at below 30 hours a week so that they are not treated as full-time employees under the ACA.<br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  Preamble to the Final Regulations, TD 9655.<br /> <br /> </div>

<div class="Section1">The IRS has released final regulations that address the impact of employer contributions to cafeteria plans and health reimbursement arrangements (HRAs) upon the affordability of coverage and the employee's required contribution toward health coverage.</div><br /> <div class="Section1"><br /> <br /> Pursuant to these regulations, an employee's required contribution toward health coverage is reduced by the amount of any employer contribution to an IRC Section 125 cafeteria plan that (1) may not be taken as a taxable benefit, (2) may be used to pay for minimum essential health coverage and (3) may only be used to pay for medical care.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> Employer contributions to an employee's HRA are used in determining the level of the employee's required contributions if the HRA is integrated with an employer-sponsored health plan and the employee is permitted to use the contributions to pay premiums. Further, the HRA amounts will count toward the employee's required contribution if the HRA would have been integrated with an employer-sponsored plan if the employee had enrolled in the primary health plan offered by that employer.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> The HRA funds are only taken into account in determining the employee's required contribution if both the HRA and the primary health plan are offered by the same employer.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  Treas. Reg. § 1.5000A-3(e)(2)(E).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.  Treas. Reg. § 1.5000A-3(e)(2)(D). See also Notice 2013-54, 2013-40 IRB 287.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.  Treas. Reg. § 1.5000A-3(e)(2)(D).<br /> <br /> </div>

<div class="Section1">Companies that have a common owner will generally be combined for purposes of determining whether an employer is subject to the ACA shared responsibility provisions.<a href="#_ftn1" name="_ftnref1">¹</a> Whether or not a group of employers is treated as a single employer for ACA purposes is determined based upon the IRC Section 414 provisions that apply to aggregate certain employers for employment benefit purposes.</div><br /> <div class="Section1"><br /> <br /> An employer is part of a controlled group if it is a parent-subsidiary controlled group of corporations and:<br /> <blockquote>(1)  stock possessing at least 80 percent of the voting power or value of all classes of stock in each of the corporations (except the parent) is owned by one or more of the other corporations, and<br /> <br /> (2)  the common parent corporation owns at least 80 percent of the total voting power or value of at least one of the other corporations.<a href="#_ftn2" name="_ftnref2">²</a></blockquote><br /> An employer is part of a brother-sister controlled group if five or fewer persons who are individuals, estates or trusts own stock possessing more than 50 percent of the combined voting power or value of all classes of stock of each corporation.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> Rules similar to the rules discussed above are applied in determining whether an employer that is not a corporation is treated as a member of a controlled group for purposes of the ACA shared responsibility provisions.<a href="#_ftn4" name="_ftnref4">⁴</a> All employees of members of an affiliated service group are also treated as though employed by a single employer.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  IRC § 4980H(c)(2)(C).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.  IRC §§ 414(b), 1563(a)(1).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.  IRC §§ 414(b), 1563(a)(2).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.  IRC § 414(c).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.  IRC § 414(m).<br /> <br /> </div>

<div class="Section1"><em>Editor's Note:</em> The shared responsibility penalty was reduced to zero for tax years beginning after 2018.</div><br /> <div class="Section1"><br /> <br /> Yes. If an individual is eligible to enroll in an employer-sponsored health plan that has adopted a plan year that is not a calendar year, the individual is eligible for transition relief from the shared responsibility penalty if the plan year began in 2013 and ended in 2014. The transition relief began in January 2014 and continued through the month in which the plan year ended.<a href="#_ftn1" name="_ftnref1">¹</a> This rule was particularly important because many employer-sponsored health plans do not allow an employee to enroll in a plan after the beginning of the plan year. In the case of a 2013-2014 non-calendar year health plan, eligible employees would not be permitted to obtain the employer-sponsored coverage until after the start of 2014, when the shared responsibility penalty provision had already become effective. The transition relief prevented these taxpayers from becoming liable for the shared responsibility provision until the next plan year began in 2014.<br /> <br /> The IRS also provided relief for taxpayers who are covered under certain limited-benefit government-sponsored health plans which may not provide minimum essential coverage (examples of this type of coverage include optional family planning coverage and pregnancy-related services that are offered through Medicaid). This transition relief applied to months in 2014 in which an individual was covered by one of the specifically enumerated plans that did not provide minimum essential coverage.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  Notice 2013-42, 2013-29 IRB 61.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.  Notice 2014-10, 2014-9 IRB 605.<br /> <br /> </div>

<div class="Section1">IRS guidance indicates that an employer who owes a shared responsibility penalty will not be required to include payment when it files its tax return for the year. Instead, the IRS will send a notice and demand for payment that includes payment instructions for the employer to follow.<a href="#_ftn1" name="_ftnref1">¹</a></div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  IRS Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act, available at: http://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act (last accessed September 28, 2024).<br /> <br /> </div>

<div class="Section1">The Affordable Care Act shared responsibility rules treat two or more employers that are under common control as a single employer for purposes of determining whether that employer is an applicable large employer so that the shared responsibility penalties may apply.<a href="#_ftn1" name="_ftnref1">¹</a> As a result, all of an employee's hours of service with each member of a group of employers that are under common control are added together in determining whether that employee is a full-time employee for purposes of applicable large employer status.</div><br /> <div class="Section1"><br /> <br /> Conversely, if the employee works for two employers who are not under common control, the employee's hours of service with the first employer are not counted as hours of service with the second employer.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  IRC § 4980(c)(2)(C)(i).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.  IRS Questions &amp; Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act, available at: http://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act (last accessed September 28, 2024).<br /> <br /> </div>