Recent Tax Updates

2015 Employer Shared Responsibility Payment (Penalty) Under the Affordable Care Act

October 29, 2014

As a reminder, the employer shared responsibility (penalty) portion of the Affordable Care Act will be applied beginning on January 1, 2015. Therefore, all large employers (generally employed 100 or more full-time employees during 2014) are required to offer affordable health insurance to their employees that provides minimum essential coverage. Large employers who fail to do so will be subject to a shared responsibility payment (penalty).

For 2015 there is transitional relief from the penalty for businesses that employed between 50 and 100 full-time equivalent employees during 2014. To be eligible, an employer must meet the following conditions:

• Did not reduce the size of its workforce or overall hours of service of its employees during the period starting on February 9, 2014 and ending on December 31, 2014.
• Did not eliminate or materially reduce the health coverage it offered as of February 9, 2014 during the period beginning on February 9, 2014 and ending on December 31, 2015.
• Must have employed, on average, at least 50 full time employees but fewer than 100 full time employees during 2014.

If they do not meet these conditions, then the definition of a large employer is 50 or more full-time employees during 2014.

Generally, a large employer will be subject to a shared responsibility payment (penalty) for 2015 once at least one full-time employee receives a premium tax credit and:

• Employer does not offer health insurance coverage to at least 70% of their employees – Penalty is calculated as $2,000 X (Total number of full-time employees minus 30) which is prorated for each month that they did not offer coverage;

Or

• Employer offers health insurance coverage that is not affordable or does not meet the minimum value standards – Penalty is $3,000 for each full-time employee who opts out of the employer’s coverage and obtains their health insurance through a Marketplace and is eligible for a premium tax credit.

The affordability standard is not met if an employee’s required contribution for self-only coverage exceeds 9.5% of their income.

The minimum value standard is not met if the employer’s plan pays less than 60% of covered expenses.

The definition of full-time equivalent employees includes all full-time employees plus the full-time equivalent for part-time employees.

An employee is considered full-time for a calendar month if they average at least 30 hours of service per week or 130 hours of service per month.  The full-time equivalent for part-time employees is calculated as the total hours for each month of all part-time employees divided by 120.

For more information on the employer shared responsibility payment see:

• IRS Questions and Answers on Employer Shared Responsibility Provisions - Covers the basics, identification of full-time employees, calculation and how employer shared responsibility payment is made, and  transitional rules for 2015 and small employers.
• Final IRS regulations that were issued on February 12, 2014.
• IRS Notice 2011-36 for detailed explanation of how to calculate the number of full-time equivalent employees.