As we advised you in our February 19, 2013 memorandum, the Affordable Care Act (“the ACA”) includes a shared responsibility provision that potentially penalizes covered employers that do not offer affordable health insurance coverage to their full-time employees. The ACA regulations define “affordable” as requiring the employee to contribute no more than 9.5% of his/her household income toward his/her share of the premium cost of the least expensive individual coverage plan available to him/her. There are also three safe harbors that measure affordability based upon 9.5% of an employee’s W-2 Box 1 wages, rate of pay or the Federal Poverty Line.

The ACA regulations permit the Internal Revenue Service to annually adjust the affordability threshold. The IRS recently issued Revenue Procedure 2014-37 which, effective January 1, 2015, increases the threshold to 9.56% of the employee’s household income.

Due to the language of the regulations, an increase in the household income affordability standard does not result in a concomitant increase in the safe harbor affordability standards. As a result, it appears that the affordability standard for the safe harbors remains at 9.5%. Unless and until the IRS clarifies this issue, we recommend that employers that have adopted a safe harbor affordability standard continue to use 9.5% as the threshold.

We will continue to apprise you of any substantive developments with regard to the ACA. Please contact us if you need assistance in determining whether the coverage that you will be offering in 2015 is affordable.

THIS MEMORANDUM IS MEANT TO ASSIST IN GENERAL UNDERSTANDING OF THE CURRENT LAW. IT IS NOT TO BE REGARDED AS LEGAL ADVICE. THOSE WITH PARTICULAR QUESTIONS SHOULD SEEK THE ADVICE OF COUNSEL.

TAX ADVICE DISCLOSURE: THIS WRITTEN COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER.  THIS STATEMENT HAS BEEN PROVIDED PURSUANT TO U.S. TREASURY REGULATIONS GOVERNING TAX PRACTICE.

© Lamb & Barnosky, LLP 2014