Reminder: Affordable Care Act (ACA) Pay or Play Penalties Still Apply – With a Decreased Affordability Percentage for 2020
As we plan for 2020, most employers are already familiar with including the ACA’s employer shared responsibility provision – often called the employer mandate or “play or pay” into their process. This requires applicable large employers (ALE) to offer health coverage to their full-time employees or face potential penalty. To avoid the risk of any play or pay penalties ALEs must offer full time employees at least one group health plan option that meets two standards: it provides minimum value and it is affordable.
Back in April, the IRS Office of Chief Counsel released an information letter confirming that that the pay or play penalties continue to apply, (despite executive order). The letter also indicates that the law does not provide for any waiver of the pay or play penalties and reiterates that, while several forms of transition relief were available for 2015 and 2016, no transition relief is available for 2017 and future years. This information letter was issued as a response to those questioning the impact of the Presidents 2017 ACA Executive order that directed federal agencies to exercise “authority and discretion permitted to them by law to waive, defer, grant exemptions from, or delay regulatory burden the ACA imposed.” It serves to remind us:
- The employer mandates continue to apply.
- President Trump’s executive order does not change the law. Taxpayers are still required to follow the ACA, including paying any applicable penalties.
- Changes to ACA requirements must be made by Congress through the legislative process.
The ACA’s employer shared responsibility rules will continue to apply to employers with, on average, at least 50 full-time employees, including full-time equivalent employees (FTEs), during the preceding calendar year, making them an ALE. If one or more full-time employees obtain an Exchange subsidy, either because the ALE does not offer health coverage, or offers coverage that is unaffordable or does not provide minimum value, an ALE may be subject to a penalty.
To determine affordability for 2020, the IRS has also released Revenue Procedure 2019-29. For plan years beginning in 2020, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed 9.78% of the employee’s household income for the year. This is a decrease from the affordability contribution percentages for 2019. As a result, some employers may have to lower their employee contributions for 2020 to meet the adjusted percentage. Employers using the Federal Poverty Level Safe Harbor will need to set their maximum monthly contribution rate for self-only coverage at or below $101.79. Monthly contributions above this rate should make sure their offer is affordable under the remaining two ACA Safe Harbors; Employee W-2 Wages or Employee’s Rate of Pay.
For more information on the ACA Executive Order and tax filing season, visit the IRS’ ACA Information Center for Tax Professionals.
The information provided in this article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. If you have any questions, please contact our Employee Benefits Management Group (EBMG) here or by calling (800) 242-4433.