In Revenue Procedure 2022-34, the IRS recently announced an important indexing adjustment related to the Affordable Care Act (ACA). That makes now a good time to review whether your organization is an applicable large employer (ALE) under the ACA and, if so, whether the health care coverage you offer employees will still be considered “affordable” next year.
Affordability and minimum value
An employer’s size, for ACA purposes, is determined in any given year by its number of employees in the previous year. Generally, if your organization had 50 or more full-time or full-time equivalent employees on average during the previous year, you’ll be considered an ALE for the current calendar year. A full-time employee is an individual who provides, on average, at least 30 hours of service per week.
Under the ACA, what happens if an ALE doesn’t offer minimum essential coverage that’s affordable and provides minimum value to its full-time employees and their dependents? The employer may be subject to a penalty if at least one of its full-time employees receives a premium tax credit for buying individual coverage through a Health Insurance Marketplace (commonly referred to as an “exchange”).
Latest adjustments
For plan years beginning in 2023, the required contribution percentage used to determine whether employer-sponsored health coverage is affordable for purposes of the ACA’s employer shared responsibility provision has been adjusted from the 9.5% baseline to 9.12%. This is a decrease from the 2022 amount of 9.61%.
Some important and late-breaking changes have come to the premium tax credit. That is, the newly signed Inflation Reduction Act (IRA) extends — through 2025 — the favorable premium tax credit rules adopted under the American Rescue Plan Act (ARPA).
The ACA limits the premium tax credit to taxpayers with household incomes between 100% and 400% of the federal poverty line who buy insurance through a Health Insurance Marketplace. However, the ARPA eliminated the upper income limit for eligibility. It also increased the amount of the premium tax credit by decreasing, across all income bands, the percentage of household income that eligible individuals must contribute toward the cost of coverage bought from a Health Insurance Marketplace.
The 2023 percentages had been indexed to 1.92% to 9.12%. But a provision of the IRA supersedes these previously released indexing adjustments, so they’ll remain at zero to 8.5% through 2025.
Compliance is critical
Careful compliance with health care insurance mandates and requirements remains critical for employers.
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