IRS Issues ACA Rules for Employers

Regulation-Work OverloadOn Friday December 28, 2012 the IRS issued rules for determining group size for
ACA compliance. The proposed regulations provide a comprehensive structure of
rules that employers will need to follow to comply with the law

The rules will not go into effect until January 1, 2014. The entire 144 page
text of the regulations may be viewed at www.irs.gov/pub/newsroom/reg-138006-12.pdf
(Cut and paste into your browser if link is not active).The IRS has also issued
a helpful, simplified Q&A summary on the new rules that appear below.

From the IRS Website:

Questions and Answers on Employer Shared Responsibility Provisions Under the
Affordable Care Act.

December 28, 2012

Basics of the Employer Shared Responsibility Provisions

1. What are the Employer Shared Responsibility provisions?

Starting in 2014, employers employing at least a certain number of employees
(generally 50 full-time employees and full-time equivalents, explained more
fully below) will be subject to the Employer Shared Responsibility provisions
under section 4980H of the Internal Revenue Code (added to the Code by the
Affordable Care Act). Under these provisions, if these employers do not offer
affordable health coverage that provides a minimum level of coverage to their
full-time employees, they may be subject to an Employer Shared Responsibility
payment if at least one of their full-time employees receives a premium tax
credit for purchasing individual coverage on one of the new Affordable
Insurance Exchanges.

To be subject to these Employer Shared Responsibility provisions, an employer
must have at least 50 full-time employees or a combination of full-time and
part-time employees that is equivalent to at least 50 full-time employees (for
example, 100 half-time employees equals 50 full-time employees). As defined by
the statute, a full-time employee is an individual employed on average at least
30 hours per week (so half-time would be 15 hours per week).

2. When do the Employer Shared Responsibility provisions go into effect?

The Employer Shared Responsibility provisions generally go into effect on
January 1, 2014. Employers will use information about the employees they employ
during 2013 to determine whether they employ enough employees to be subject to
these new provisions in 2014. See question 4 for more information on
determining whether an employer is subject to the Employer Shared
Responsibility provisions.

3. Is more detailed information available about the Employer Shared
Responsibility provisions?

Yes. Treasury and the IRS have proposed regulations on the new Employer Shared
Responsibility provisions. Comments on the proposed regulations may be
submitted by mail, electronically, or hand-delivered, and are due by March 18,
2013.

Which Employers are Subject to the Employer Shared Responsibility provisions?

4. I understand that the employer shared responsibility provisions apply only
to employers employing at least a certain number of employees? How does an
employer know whether it employs enough employees to be subject to the provisions?

To be subject to the Employer Shared Responsibility provisions, an employer
must employ at least 50 full-time employees or a combination of full-time and
part-time employees that equals at least 50 (for example, 40 full-time
employees employed 30 or more hours per week on average plus 20 half-time
employees employed 15 hours per week on average are equivalent to 50 full-time
employees). Employers will determine each year, based on their current number
of employees, whether they will be considered a large employer for the next
year. For example, if an employer has at least 50 full-time employees,
(including full-time equivalents) for 2013, it will be considered a large
employer for 2014.

Employers average their number of employees across the months in the year to
see whether they meet the large employer threshold. The averaging can take
account of fluctuations that many employers may experience in their work force
across the year. For those employers that may be close to the 50 full-time
employee (or equivalents) threshold and need to know what to do for 2014,
special transition relief is available to help them count their employees in
2013. See question 19 below for information about this transition relief. The
proposed regulations provide additional information about how to determine the
average number of employees for a year, including information about how to take
account of salaried employees who may not clock their hours and a special rule
for seasonal workers.

5. If two or more companies have a common owner or are otherwise related, are
they combined for purposes of determining whether they employ enough employees
to be subject to the Employer Shared Responsibility provisions?

Yes, consistent with longstanding standards that apply for other tax and
employee benefit purposes, companies that have a common owner or are otherwise
related generally are combined together for purposes of determining whether or
not they employ at least 50 full-time employees (or an equivalent combination
of full-time and part-time employees). If the combined total meets the
threshold, then each separate company is subject to the Employer Shared
Responsibility provisions, even those companies that individually do not employ
enough employees to meet the threshold. (The rules for combining related
employers do not apply for purposes of determining whether an employer owes an
Employer Shared Responsibility payment or the amount of any payment). The
proposed regulations provide information on the rules for determining whether companies
are related and how they are applied for purposes of the Employer Shared
Responsibility provisions.

6. Do the Employer Shared Responsibility provisions apply only to large
employers that are for-profit businesses or to other large employers as well?

All employers that employ at least 50 full-time employees or an equivalent
combination of full-time and part-time employees are subject to the Employer
Shared Responsibility provisions, including for-profit, non-profit and
government entity employers.

7. Which employers are not subject to the Employer Shared Responsibility
provisions?

Employers who employ fewer than 50 full-time employees (or the equivalent
combination of full-time and part-time employees) are not subject to the
Employer Shared Responsibility provisions. An employer with at least 50
full-time employees (or equivalents) will not be subject to an Employer Shared
Responsibility payment if the employer offers affordable health coverage that
provides a minimum level of coverage to its full-time employees.

8. Are companies with employees working outside the United States subject to
the Employer Shared Responsibility provisions?

For purposes of determining whether an employer meets the 50 full-time employee
(or full-time employees and full-time employee equivalents) threshold, an
employer generally will take into account only work performed in the United
States. For example, if a foreign employer has a large workforce worldwide, but
less than 50 full-time (or equivalent) employees in the United States, the
foreign employer generally would not be subject to the Employer Shared
Responsibility provisions.

9. Are companies that employ US citizens working abroad subject to the Employer
Shared Responsibility provisions?

A company that employs U.S. citizens working abroad generally would be subject
to the Employer Shared Responsibility provisions only if the company had at
least 50 full-time employees (or the equivalent combination of full-time and
part-time employees), determined by taking into account only work performed in
the United States. Accordingly, employees working only abroad, whether or not
U.S. citizens, generally will not be taken into account for purposes of
determining whether an employer meets the 50 full-time employee (or equivalents)
threshold. Furthermore, for employees working abroad the time spent working for
the employer outside of the U.S. would not be taken into account for purposes
of determining whether the employer owes an Employer Shared Responsibility
payment or the amount of any such payment.

Liability for the Employer Shared Responsibility Payment

10. Under what circumstances will an employer owe an Employer Shared
Responsibility payment?

In 2014, if an employer meets the 50 full-time employee threshold, the employer
generally will be liable for an Employer Shared Responsibility payment only if:

(a) The employer does not offer health coverage or offers coverage to less than
95% of its full-time employees, and at least one of the full-time employees
receives a premium tax credit to help pay for coverage on an Exchange;

OR

(b) The employer offers health coverage to at least 95% of its full-time
employees, but at least one full-time employee receives a premium tax credit to
help pay for coverage on an Exchange, which may occur because the employer did
not offer coverage to that employee or because the coverage the employer
offered that employee was either unaffordable to the employee (see question 11,
below) or did not provide minimum value (see question 12, below).

After 2014, the rule in paragraph (a) applies to employers that do not offer
health coverage or that offer coverage to less than 95% of their full time
employees and the dependents of those employees.

11. How does an employer know whether the coverage it offers is affordable?

If an employee’s share of the premium for employer-provided coverage would cost
the employee more than 9.5% of that employee’s annual household income, the
coverage is not considered affordable for that employee. If an employer offers
multiple healthcare coverage options, the affordability test applies to the
lowest-cost option available to the employee that also meets the minimum value
requirement (see question 12, below.)

Because employers generally will not know their employees’ household incomes,
employers can take advantage of one of the affordability safe harbors set forth
in the proposed regulations. Under the safe harbors, an employer can avoid a
payment if the cost of the coverage to the employee would not exceed 9.5% of the
wages the employer pays the employee that year, as reported in Box 1 of Form
W-2, or if the coverage satisfies either of two other design-based
affordability safe harbors.

12. How does an employer know whether the coverage it offers provides minimum
value?

A minimum value calculator will be made available by the IRS and the Department
of Health and Human Services (HHS). The minimum value calculator will work in a
similar fashion to the actuarial value calculator that HHS is making available.
Employers can input certain information about the plan, such as deductibles and
co-pays, into the calculator and get a determination as to whether the plan
provides minimum value by covering at least 60 percent of the total allowed
cost of benefits that are expected to be incurred under the plan.

13. If an employer wants to be sure it is offering coverage to all of its
full-time employees, how does it know which employees are full-time employees?
Does the employer need to offer the coverage to all of its employees because it
won’t know for certain whether an employee is a full-time employee for a given
month until after the month is over and the work has been done?

The proposed regulations provide a method to employers for determining in
advance whether or not an employee is to be treated as a full-time employee,
based on the hours of service credited to the employee during a previous
period. Using this look-back method to measure hours of service, the employer
will know the employee’s status as a full-time employee at the time the
employer would offer coverage. The proposed regulations are consistent with IRS
notices that have previously been issued and describe approaches that can be
used for various circumstances, such as for employees who work variable hour
schedules, seasonal employees, and teachers who have time off between school
years.

Calculation of the Employer Shared Responsibility Payment

14. If an employer that does not offer coverage or offers coverage to less than
95% of its employees owes an Employer Shared Responsibility payment, how is the
amount of the payment calculated?

In 2014, if an employer employs enough employees to be subject to the Employer
Shared Responsibility provisions and does not offer coverage during the
calendar year to at least 95% of its full-time employees, it owes an Employer
Shared Responsibility payment equal to the number of full-time employees the
employer employed for the year (minus 30) multiplied by $2,000, as long as at
least one full-time employee receives the premium tax credit. (Note that for
purposes of this calculation, a full-time employee does not include a full-time
equivalent). For an employer that offers coverage for some months but not
others during the calendar year, the payment is computed separately for each month
for which coverage was not offered. The amount of the payment for the month
equals the number of full-time employees the employer employed for the month
(minus up to 30) multiplied by 1/12 of $2,000. If the employer is related to
other employers (see question 5 above), then the 30-employee exclusion is
allocated among all the related employers. The payment for the calendar year is
the sum of the monthly payments computed for each month for which coverage was
not offered. After 2014, these rules apply to employers that do not offer
coverage or that offer coverage to less than 95% of their full time employees
and the dependents of those employees.

15. If an employer offers coverage to at least 95% of its employees, and,
nevertheless, owes the Employer Shared Responsibility payment, how is the
amount of the payment calculated?

For an employer that offers coverage to at least 95% of its full-time employees
in 2014, but has one or more full-time employees who receive a premium tax
credit, the payment is computed separately for each month. The amount of the
payment for the month equals the number of full-time employees who receive a
premium tax credit for that month multiplied by 1/12 of $3,000. The amount of
the payment for any calendar month is capped at the number of the employer’s
full-time employees for the month (minus up to 30) multiplied by 1/12 of
$2,000. (The cap ensures that the payment for an employer that offers coverage
can never exceed the payment that employer would owe if it did not offer coverage).
After 2014, these rules apply to employers that offer coverage to at least 95%
of full time employees and the dependents of those employees.

Making an Employer Shared Responsibility Payment

16. How will an employer know that it owes an Employer Shared Responsibility
payment?

The IRS will contact employers to inform them of their potential liability and
provide them an opportunity to respond before any liability is assessed or
notice and demand for payment is made. The contact for a given calendar year
will not occur until after employees’ individual tax returns are due for that
year claiming premium tax credits and after the due date for employers that
meet the 50 full-time employee (plus full-time equivalents) threshold to file
the information returns identifying their full-time employees and describing
the coverage that was offered (if any).

17. How will an employer make an Employer Shared Responsibility payment?

If it is determined that an employer is liable for an Employer Shared
Responsibility payment after the employer has responded to the initial IRS
contact, the IRS will send a notice and demand for payment. That notice will
instruct the employer on how to make the payment. Employers will not be
required to include the Employer Shared Responsibility payment on any tax
return that they file.

Transition Relief

18. I understand that the Employer Shared Responsibility provisions do not go
into effect until 2014. However, the health plan that I offer to my employees
runs on a fiscal plan year that starts in 2013 and will run into 2014. Do I
need to make sure my plan complies with these new requirements in 2013 when the
next fiscal plan year starts?

For an employer that as of December 27, 2012, already offers health coverage
through a plan that operates on a fiscal year (a fiscal year plan), transition
relief is available. First, for any employees who are eligible to participate
in the plan under its terms as of December 27, 2012 (whether or not they take
the coverage), the employer will not be subject to a potential payment until
the first day of the fiscal plan year starting in 2014. Second, if (a) the
fiscal year plan (including any other fiscal year plans that have the same plan
year) was offered to at least one third of the employer’s employees (full-time
and part-time) at the most recent open season or (b) the fiscal year plan
covered at least one quarter of the employer’s employees, then the employer
also will not be subject to the Employer Shared Responsibility payment with
respect to any of its full-time employees until the first day of the fiscal
plan year starting in 2014, provided that those full-time employees are offered
affordable coverage that provides minimum value no later than that first day.
So, for example, if during the most recent open season preceding December 27,
2012, an employer offered coverage under a fiscal year plan with a plan year
starting on July 1, 2013 to at least one third of its employees (meeting the
threshold for the additional relief), the employer could avoid liability for a
payment if, by July 1, 2014, it expanded the plan to offer coverage satisfying
the Employer Shared Responsibility provisions to the full-time employees who
had not been offered coverage. For purposes of determining whether the plan
covers at least one quarter of the employer’s employees, an employer may look
at any day between October 31, 2012 and December 27, 2012.

19. Is transition relief available to help employers that are close to the 50
full-time employee threshold determine their options for 2014?

Yes. Rather than being required to use the full twelve months of 2013 to
measure whether it has 50 full-time employees (or an equivalent number of
part-time and full-time employees), an employer may measure using any
six-consecutive-month period in 2013. So, for example, an employer could use
the period from January 1, 2013, through June 30, 2013, and then have six
months to analyze the results, determine whether it needs to offer a plan, and,
if so, choose and establish a plan.

Additional Information

20. When can an employee receive a premium tax credit?

Premium tax credits generally are available to help pay for coverage for
employees who

• are between 100% and 400% of the federal poverty level and enroll in coverage
through an Affordable Insurance Exchange,

• are not eligible for coverage through a government-sponsored program like
Medicaid or CHIP, and

• are not eligible for coverage offered by an employer or are eligible only for
employer coverage that is unaffordable or that does not provide minimum value.

21. If an employer does not employ enough employees to be subject to the
Employer Shared Responsibility provisions, does that affect the employer’s
employees’ eligibility for a premium tax credit?

No. The rules for how eligibility for employer-sponsored insurance affects
eligibility for the premium tax credit are the same, regardless of whether the
employer employs enough employees to be subject to the Employer Shared
Responsibility provisions.

22. Where can employees get more information about Affordable Insurance
Exchanges?

The Department of Health and Human Services is developing the rules for
exchanges.

23. The Treasury Department and the IRS have proposed regulations on the
Employer Shared Responsibility provisions that are proposed to be effective for
months after December 31, 2013. However, there are certain decisions and
actions employers may have to take during 2013 to prepare for 2014. May
employers rely on the proposed regulations during 2013 for guidance on the Employer
Shared Responsibility provisions?

Yes. Taxpayers may rely on the proposed regulations for purposes of compliance
with the Employer Shared Responsibility provisions. If the final regulations
are more restrictive than the guidance in the proposed regulations, the final
regulations will be applied prospectively, and employers will be given
sufficient time to come into compliance with the final regulations.

The regulations in there entirely can be found on the IRS website.

For a Free Consultation and Review of your current Employee Benefit offering, visit our website at: www.BeWellInsurance.com,
and email us to schedule a 1 on 1 Consultation.

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