Some federal regulations seem to have been crafted to say nothing, at great length. The IRS ACA Employer Shared Responsibility Cost final rule, released February 10, 2014, is at the other end of the spectrum – 227 pages of important, tightly-packed, complex communication. This is Part I of a four-part series summarizing some major topics addressed in the final rule. As with all posts on this site, please don’t substitute this for legal advice. We’ve had to omit much in order to cover what we cover intelligibly, for a broad audience. Read this, then get legal advice.
This final rule governs only IRS enforcement of sections 4980H (employer mandate taxes) and 6056 (employer reporting of group health plan coverage) of the Internal Revenue Code. The IRS has lots of other ACA rules, some issued jointly with DOL and HHS, which also have issued many of their own ACA rules. Thus, for example, this IRS final rule warns that the 90-day waiting period rule will be enforced for § 4980H purposes differently than it may be enforced for Public Health Service Act § 2708 (coverage mandate) purposes, so that an employer may be exposed to PHS Act penalties even if its coverage offer is timely for the purpose of avoiding employer mandate taxes. Headlines reporting “another one-year delay of Obamacare” are grossly exaggerated. Also, this final rule confesses that the IRS has not figured out how to write rules on some important issues, such as how the business aggregation (“controlled group”) tests will apply to non-federal governmental agencies. Now, down to the business of Part I, so-called “transition relief.”
A candid regulator would tell you that calling something “transition relief” signals that the agency foresees adverse enforcement consequences that it wants to delay or limit. The reasons could be political, or they could be administrative, or legal, or a mish-mash. Speculating about motives is for others. We’re all about compliance strategy. This final rule brings a load of transitional relief, some of it new, in box. Here are seven summary highlights.
The ACA, for employer mandate purposes, divides employers in to “Applicable Large Employers” (=/> 50 employees) and others (< 50). This rule adds a third category, 50 – 99, that we’ll call “bubble” employers. No bubble employer will accrue a § 4980H tax liability with respect to 2015 coverage months, if:
- The employer does not cut jobs or work hours between February 9, 2014 and December 31, 2014, other than for legitimate business reasons unrelated to the ACA;
- The employer does not make adverse changes to the group health plan coverages and cost sharing features in effect on February 9, 2014;
- And, the employer so certifies when it files its § 6056 information return.
ALE’s that offer coverage to at least 70% (down from 95%) of their full-time employees (and dependents) during coverage months in the 2015 plan year will not be assessed the § 4980H(a) tax – i.e., $166.67 per coverage month, per full-time employee. If the ALE is a member of a controlled group, then the full-time employee number used to calculate that tax will be the number in excess of the member’s allocable share of the controlled group’s first 80 (up from 30).
An employer may select any period of six consecutive months (reduced from all twelve) in 2014 to determine whether it has employed, in those months, an average of at least 50 employees, and so is an Applicable Large Employer for 2015.
If one becomes an ALE for the first time during 2015, then § 4980H taxes will not accrue during the first three months of 2016, if the new ALE has affordable, qualifying coverage in place by April 1, 2016.
Employers with non-calendar year plans, with plan years unchanged since December 27, 2012, may, with some conditions, avoid accrual of § 4980H taxes for 2015 calendar months before the 2015 plan year begins, but will nevertheless be subject to the full § 6056 reporting obligation for all of 2015.
An ALE, in 2015 only, may avoid § 4980H taxes for January by making coverage offers effective not later than the first day of the first payroll period that begins that month (rather than by January 1).
A plan that provides no dependent coverage, or insufficient dependent coverage, during 2015 (assuming no regression) will not thereby expose the employer to § 4980H taxes as long as the employer takes steps in 2015 to get the plan into compliance.
This seems like a lot, but we have left out far more than we have covered. Part II will address how the final employer mandate rule treats parties to an employee leasing arrangement.