IRS Adjusts Affordability to 9.56% Under Employer Mandate
- Aug 13, 2014
- Employer Mandate
- Dennis J. Merley
Beginning in 2015, certain applicable large employers with more than 100 full-time employees and full-time equivalents will be subject to an assessable payment for failing to offer an employee the opportunity to enroll in minimum essential coverage that is affordable. Coverage is determined to be affordable if the employee’s required contribution for the lowest level, self-only coverage does not exceed 9.5% of the applicable taxpayer’s household income.
On July 24, 2014, the IRS issued Revenue Procedure 2014-37. This Revenue Procedure adjusts the Section 36B Required Contribution Percentage to 9.56%. This adjustment is effective for the taxable and plan years beginning after December 31, 2014.
This adjustment of 6 one-hundredths of one percent is clearly not massive; but it may be significant for employers whose offers of coverage had tested unaffordable for certain classifications of workers.
Employers can now use this adjustment to make more definitive plans for 2015, in particular with use of the Federal Poverty Line Safe Harbor.
The Federal Poverty Line Safe-Harbor is a ‘fail-safe’ safe harbor. It applies even if the federal poverty line amount is less than a particular employee’s actual income. That is, if an employee’s contribution does not exceed the Federal Poverty Line Safe-Harbor, even if the employee’s contribution towards the cost of the lowest level, self-only exceeds 9.5%, the coverage is considered affordable. An employer who satisfies the Federal Poverty Line Safe Harbor will always meet the affordability test.
The Federal Poverty Line Safe Harbor is calculated by taking the Federal Poverty Line, dividing it by 12, and taking 9.56% of that. The final regulations allow an employer to use the Federal Poverty Line Safe Harbor rate in effect six months prior to the start of the plan year, rather than at the start of the plan year.
The Federal Poverty Line for 2014 is $11,670. For an employer with a tax or plan year starting January 1, 2015, applying the new guidance of Revenue Procedure 2014-37 coverage is affordable if an employee’s monthly contribution for the lowest level, self-only coverage does not exceed $92.97.