Treasury Issues Final Regulations Which Delay Employer Mandate

February 13, 2014Articles
The Obama Administration initially delayed the imposition of the employer “shared responsibility” payment (applicable under Internal Revenue Code section 4980H) which required all employers with greater than 50 employees to provide qualifying health care coverage for all full-time employees or be subject to a penalty on July 2, 2013. On Feb. 10, 2014, the U.S. Treasury Department released final regulations regarding the shared responsibility payment and again delayed imposition of this penalty for employers who have greater than 50 but less than 100 employees.

Under the guidance, employers who have 99 or less full-time employees (including full-time equivalent employees—a specifically defined term for part-time employees that is based on the numbers of hours worked) during the 2014 year will not be subject to the shared responsibility payment prior to the year 2016.

In order to be eligible for relief from the penalty, the employer must certify: 1) that they employ less than 100 full-time employees (including full-time equivalent employees) during 2014; 2) that they will not reduce the size or overall hours of employees to qualify for this relief (bona fide reductions for business reasons are still eligible); and 3) must not eliminate, or materially reduce, the health coverage that was currently offered (if any) as of February 9, 2014.

The relief is available for employers who maintain calendar year plans and non-calendar year plans. Therefore, beginning Jan. 1, 2015 (or following the end of the plan year which began in 2014 for employer’s who maintain non-calendar year plans), all applicable large employers with 100 or more full-time employees (including full-time equivalents) must provide such health coverage to bona fide full-time employees or be subject to the 4890H payments. Beginning January 1, 2016 (or following the end of the plan year which began in 2015 for non-calendar year plans), all employers with 50 or more full-time employees (including full-time equivalents) must provide health coverage to their bona fide full-time employees or be subject to the 4980H payments.

Transitional relief has been provided for large employers with at least 100 full-time/full-time equivalent employees (or any employer with less than 100 full-time/full-time equivalent employees who did not qualify for the aforementioned relief). Under the newly issued guidance, such employers will only be liable for the shared responsibility payment (equal to $2000 multiplied by the number of bona fide full-time employees of the employer, regardless whether the employer provides coverage to some of those bona fide full-time employees) if the employer does not offer health coverage at all, or if the employer only offers coverage to less than 70% of their bona fide full-time employees (and at least one of those full-time employees receives a premium tax credit through the Marketplace/Exchange). Beginning in 2016, the 70% threshold will be raised to 95%.

However, even if the employer offers coverage to at least 70% of its full-time employees, but such coverage does not meet the affordability or minimum value tests (and at least one full-time employee receives a premium tax credit through the Exchange) the employer will be subject to a penalty under 4980H. This penalty is equal to $3000 multiplied by the number of bona fide full-time employees of the employer who obtain a premium subsidy from the Marketplace/Exchange.

In addition, for the year 2015 (plus any calendar months during 2016 for non-calendar year plans) applicable large employers with 100 or more full-time equivalent employees that are subject to a shared responsibility payment (for failure to cover at least 70% of the employer’s bona fide full-time employees) may reduce such payment by 80 full-time employees (instead of 30 as was originally set). Employers who operate a non-calendar year plan may only utilize this change if they do not modify their current plan year to begin on a later calendar date.

The end result of the guidance is to create a one-year exemption where the employers who have less than 100 full-time/full-time equivalent employees will be exempt from the penalty and employers with greater than 100 full-time/full-time equivalent employees (but less than 80 bona fide full-time employees) will also be exempt from the payments.

The guidance was also introduced to give more employers time to decide to provide coverage (if they have not previously provided it) or expand their coverage. This decision does not delay the individual mandate which taxpayers were required to comply with beginning on Jan. 1, 2014.