News and Insights

Affordable Care Act: Employer Shared Responsibility Updates

Tax Development Mar 18, 2014

On February 10, 2014, the Internal Revenue Service (IRS) and Treasury Department released final regulations and clarification regarding the Employer Shared Responsibility provision under the Affordable Care Act (ACA). The Employer Shared Responsibility provision (Internal Revenue Code Section 4980H) assesses a penalty on large employers who fail to provide a minimum level of affordable healthcare coverage and have at least one full-time employee receiving a premium tax credit for purchasing individual healthcare coverage in the market place. The IRS, under Notice 2013-45 and TD 9655, provided transitional relief, created a phase-in approach, and extended the penalties to 2015.

There are now no Employer Shared Responsibility requirements for 2014. The requirements will be phased in throughout tax year 2015 and will apply to those companies employing 100 or more full-time or full-time equivalent employees. Those companies with 50 or more full-time employees will be subject to the law beginning 2016.

The IRS now allows for two methods of determining an individual’s employment status. The first is to simply count the number of hours worked per week. The second is a look-back method, by which a company uses the number of hours an employee worked in prior periods to determine liability for the future periods. The IRS also determined that seasonal employees (individuals working six months or less), volunteers, and participants in student work study programs should not be considered full-time employees for Employer Shared Responsibility payments. However, teachers should still be considered full-time.

As part of the transition, the IRS also delayed issuing penalties for the implementation of company healthcare plans. Those employers who fail to offer healthcare coverage to 70% of full-time employees or more could be subject to the Employer Shared Responsibility payment if one or more employee receives a premium tax credit in 2015. In tax year 2016, the Employer Shared Responsibility penalty may apply if:

  • The employer fails to offer any health coverage or offers to fewer than 95% of the full-time employees and at least one full-time employee receives a premium tax credit to help pay for coverage on a health insurance marketplace; or
  • The employer offers health coverage to 95% or more of the full-time employees but at least one full-time employee receives a premium tax credit to help pay for coverage on a health exchange marketplace because the employer coverage was not affordable or did not provide minimum value.

Employers can be subject to the Employer Shared Responsibility payment despite offering healthcare to 95% or more of employees if the healthcare is deemed unaffordable by the ACA. The three safe harbors, Form W-2 wages safe harbor, rate of pay safe harbor, and federal poverty line safe harbor, allow employers to determine and confirm that the healthcare is affordable.

Ryan will continue to monitor all payroll issues surrounding the ACA and provide updates as available. More information on the final regulations can be found on the websites of the U.S. Department of the Treasury and the Federal Register.


Michael Mojabi

Mindy Mayo