Compliance Alert: IRS Issues Transition Rules with Respect to the Employer Penalty

On February 10, 2014, the IRS released final regulations implementing the Employer Shared Responsibility provision under the Affordable Care Act (the “employer penalty”). The guidance is complex and lengthy. This update only addresses the transition relief available under the final rules. Future updates will clarify other aspects of the regulations.

Health Care Reform stethescope imageThe transition relief contained in the final rules:

  • Provides a one-year delay (until 2016) of the employer penalty provision to employers with 50-99 full-time employees (“FTEs”) (including full-time equivalent employees), subject to certain rules. Under this relief, employers with 100 or more FTEs (including full-time equivalents) are subject to the employer penalty in 2015.
  • Extends and expands upon transition relief previously offered under the proposed regulations to delay the application of the employer penalty until the first day of the 2015 plan year (as opposed to January 1, 2015) for non-calendar year plans, subject to certain requirements.
  • For 2015 only, provides a 70% (as opposed to 95%) threshold to determine whether a large employer is considered to have offered coverage to FTEs and their dependents. Beginning in 2016, coverage must be provided to at least 95% of FTEs in order to avoid penalty.
  • For 2015 only, permits the large employer to subtract 80 (as opposed to 30) FTEs to determine the applicable penalty amount for not offering coverage to at least 70% of FTEs. For 2016, this number reverts to 30.
  • Extends additional relief with respect to plans that have not covered dependents, shortens the time span from 12 months to 6 to determine large employer status, and provides an extension of time to offer coverage to align with the first payroll period.

For the final rule, visit: http://www.gpo.gov/fdsys/pkg/FR-2014-02-12/pdf/2014-03082.pdf.

For the US Treasury Department’s Fact Sheet, visit: http://www.treasury.gov/press-center/press-releases/Documents/Fact%20Sheet%20021014.pdf.

For the IRS’s guide to the regulations, visit: http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act.

If you have questions or need further information, contact your USI service team.

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