IRS Increases 2019 ACA Affordability Percentage
Per ACA regulations, to avoid compliance risk under Internal Revenue Code section 4980H, an Applicable Large Employer (ALE) — and each ALE Member of an Aggregated ALE Group — must offer each full-time employee Minimum Essential Coverage (MEC) that provides Minimum Value (MV) and is affordable. If an ALE Member offers MEC to at least 95% of its full-time employees, it will not be at risk for penalties under section 4980H(a) – commonly referred to as the A fine. The employer may, however, still be at risk for penalties under section 4980H(b) – commonly referred to as the B fine – if the coverage offered to one or more employees was not MEC (or no coverage was offered), it did not provide minimum value, or it was not affordable. If a full-time, eligible employee does not receive such an offer, then the employer may be assessed a penalty per each employee who received a Premium Tax Credit through the Healthcare Exchange.
Regarding affordability, IRS guidance states that employer-provided coverage is considered affordable if the employee’s required contribution is no more than 9.5 percent (as adjusted) of that employee’s household income. The employee’s required contribution is based on the employee’s cost of enrolling in the least expensive coverage offered by the employer that provides minimum value. Because ALEs generally do not know their employees’ household incomes, there are three affordability safe harbors that employers can use, which are based on information the employer does have available:
- Form W-2 wages
- Employee’s rate of pay
- Federal Poverty Line
Adjusted Affordability Threshold Percentage
Each year, the IRS adjusts the section 4980H affordability safe harbor percentage to account for inflation. IRS Revenue Procedure 2018-34 updates this value: For plan years beginning in 2019, the required contribution percentage is 9.86%, an increase from 9.56% for 2018. If the amount it would cost a full-time employee to enroll (only himself in the cheapest offered plan that is MEC and provides MV) exceeds 9.86% of the employee’s annual income per the employer’s selected affordability safe harbor, then the coverage is not considered affordable. And it leaves the employer at risk for penalties under 4980H(b).
Employers: How to Accommodate the 2019 ACA Affordability Percentage
The employee required contribution percentage increased from 2018 to 2019, which allows ALEs to charge their employees a higher premium relative to an employee’s income. Even so, to mitigate your organization’s exposure to risk, it is immensely important to review your benefit plan offerings each year to ensure they remain affordable and otherwise compliant with ACA regulations. How could you afford not to?
If your organization needs support in managing ACA reporting for prior, current, or future years, contact the specialized ACA team at Equifax today.
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