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IRS Releases ACA Affordability Rates for 2018

The Internal Revenue Service has released Rev Proc 2017-36 to implement index adjustments in 2018 for certain Affordable Care Act (ACA) contribution percentages used for purposes of determining affordability under the employer shared responsibility mandate. These percentages are also used to satisfy any of the three safe harbors available to employers.

The ACA's employer shared responsibility rules require Applicable Large Employers (ALEs, defined as those with 50 or more full-time  plus full-time equivalents)  to offer affordable, minimum value health coverage to full-time employees. The ACA provides that an ALE's coverage is affordable if the employee's required contribution for self-only coverage does not exceed a certain percentage of the employee's household income for that tax year. ALEs that fail to provide affordable coverage are liable for a penalty of $3,000 per year (indexed) for each full-time employee who receives a premium tax credit through an Exchange.

For 2018, the required contribution percentage has decreased to 9.56% (from 9.69% in 2017). This means that if an employee's share of the premium for employer-provided coverage (in 2018) is more than 9.56% of his or her household income, the coverage is not considered affordable for that employee and the ALE may be liable for a penalty if that employee obtains a premium tax credit through an Exchange.  However, there are three safe harbors for 2018 that an employer can utilize to avoid that penalty:

  1. The required employee contribution for self-only coverage does not exceed 9.56 percent of a full-time employee's W-2, Box 1 income; or
  2. The required employee contribution for self-only coverage for each month employed in 2018 does not exceed 9.56 percent of the mainlaind federal poverty level for a single person; or
  3. The required employee contribution for self-only coverage for all months in 2018 does not exceed 9.56 percent of a full-time employee's hourly rate of pay.

Recommendation

Given this first decrease in the percentage of household income (and safe harbor percentages), 2018 will have a more difficult threshold for employers to meet in order to avoid an IRC 4980H(b) penalty.

Posted on September 05, 2017 by Gary B. Kushner, SPHR, CBP, President and CEO

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