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The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) expands insurance coverage in the United States through its "shared responsibility" provisions: Employers either provide health coverage or face potential employer tax penalties; likewise, individuals purchase health coverage or face potential individual tax penalties.1 The ACA does not require employers to provide health coverage, but it does impose employer penalties in the form of a monthly tax on employers that do not provide adequate and affordable health coverage to certain employees. This is known as the employer "shared responsibility" provision. This report describes the potential employer penalties as well as regulations to implement the ACA employer provisions. The regulations address insurance coverage requirements, methodologies for determining whether a worker is considered full time, provisions relating to seasonal workers and corporate franchises, and other reporting requirements.
For an economic analysis of the employer penalty and policy options to modify the penalty, see CRS Report R43181, The Affordable Care Act and Small Business: Economic Issues, by [author name scrubbed] and [author name scrubbed].
Beginning in 2015, employers employing at least 50 full-time equivalent (FTE) employees are subject to the employer shared responsibility provisions under Section 4908H of the Internal Revenue Code (IRC) as amended by the ACA. However, in 2015 there is transition relief for employers employing between 50 and 100 FTE employees if certain criteria are met. (Additional transition relief is available in certain circumstances as explained in "Implementation and Transition Relief" section of this report.)
The ACA employer shared responsibility provisions apply to all common law employers,
including government entities (such as federal, state, local, or Indian tribal government entities)
and nonprofit organizations that are exempt from federal income taxes.
The potential employer penalty does not explicitly require that employers offer their employees
acceptable health coverage. However, it does impose penalties on certain firms with at least 50
FTE employees if one or more of their full-time employees obtainobtains a premium tax credit through
the newly established health insurance exchanges.22 An individual may be eligible for a premium
tax credit if his or her income is belowbetween certain thresholds and the individual'’s employer does
not offer health coverage or offers insurance that is "“not affordable"” or does not provide "
“minimum value,"” as defined by the ACA. As shown in Figure 1, determining the potential
exposure to the employer penalty is a multi-stage process.
Figure 1. Determining If an Employer Is Subject to |
|
Only large employers may be subject to penalties regarding employer-sponsored health insurance.
The ACA defines a large employer as one who employed an average of at least 50 FTEs on
business days during the preceding calendar year.3 (See the section "Employers with Fewer Than 100 FTEs" for information on how transition relief may apply to firms with under 100 FTEs in 2015.)
As depicted in Figure 1, the determination of, to determine whether an employer is a "large employer" requires, the hours worked
by both full-time and part-time employees tomust be calculated. "Full-time" is defined as having
worked on average at least 30 hours per week.44 Hours worked by part-time employees (i.e., those
working less than 30 hours per week) are converted into FTEs and are included in the calculation used to determine whether a firm is a large employer. Generally.
In general, hours worked by seasonal employees are also included in this calculation. Overall
hours worked by part-time employees during a month are added up, and the total is divided by
120 and added to the number of full-time employees to get the number of FTE workers.55 This
calculation determines only whether an employer is considered "large"large for purposes of potentially
being subject to a penalty.66 The actual penalty is applicable solely to health coverage status of
full-time workers and is discussed in the "“How to Determine an Employee'’s Full-Time Status" ”
section of this report.
Example: Full-Time Equivalent Calculation
A firm has 35 full-time employees (averaging 30 or more hours per week, or 120 hours per month). 20 part-time employees x 96 hours = 1,920 total hours worked by part-time employees 1,920 ÷ 120 = 16 FTEs
The 16 FTEs added to the 35 full-time employees will result in the firm being considered a
16 FTEs + 35 full-time employees = 51 FTEs
|
The process to determine the underlying employer may be a complicated determination. Owners
or part-owners in multiple businesses must follow Internal Revenue Service (IRS) aggregation
rules. Firms that use independent contractors must follow IRS rules for determining whether the
contractor is an employee. Firms that have contractedcontract with a temporary help agency may also need to determine if they are the employerstaffing agency must determine
which entity is the employer (i.e., the firm or the staffing agency) for ACA purposes. Finally,
businesses that hire seasonal workers have special rules on how to count hours worked by
seasonal employees.7
The ACA large-employer calculation requires that an employer of multiple entities (such as a
franchise owner with several restaurants) must follow the IRS aggregation rules governing controlled groups.8 Specifically, if one individual or entity owns (or has a substantial ownership interest in) several franchises, all those franchises are essentially considered one entity. In this case, for purposes of the 50-FTE rule, the employees in each of the franchises must be added together to determine the number of FTEs.
The ACA definition of an employer is based on the common law standard where a worker is considered to be an employee if the worker is subject to the will and control of the employer not only as to what shall be done but how it shall be done. The potential employer penalty applies to all common law employers, including government entities (such as federal, state, local, or Indian tribal government entities) and nonprofit organizations that are exempt from federal income taxes.
An independent contractor is a worker who controls what will be done and how it will be done and for whom the contract dictates the desired result of the work. The IRS provides further
4
IRC §4980H(c)(4).
Section 4980H(c)(2)(E) specifies that for purposes of determining full-time equivalents (FTEs), the aggregate number
of hours of service of employees who are not full-time employees for the month is divided by 120 to get an FTE.
However, for purposess of determining who is a full-time worker for the assessment of the actual penalty, proposed
regulations released on December 28, 2012, would treat 130 hours of service in a calendar month as the monthly
equivalent of 30 hours of service per week (52 x 30). Thus, a worker who worked 130 hours a month would be
considered full-time for purposes of the penalty payment.
6
For information on a potential impact of the ACA provisions on smaller (but potentially determined to be large for the
purpose of the ACA) businesses, see CRS Report R43181, The Affordable Care Act and Small Business: Economic
Issues, by Sean Lowry and Jane G. Gravelle.
7
IRC §4980H(c)(2)(B). An employer will not be considered a large employer if its number of FTEs exceeds 50 for 120
days or less and it is solely the seasonal workers who push the employer into the large employer designation.
5
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ACA: Employer Shared Responsibility Determinations and Potential Penalties
controlled groups.8 Specifically, if one individual or entity owns (or has a substantial ownership
interest in) several franchises, all those franchises are essentially considered one entity. In this
case, for purposes of the 50-FTE rule, the employees in each of the franchises must be added
together to determine the number of FTEs.
Independent Contractors
The ACA definition of an employer is based on the common law standard in which a worker is
considered to be an employee if the worker is subject to the will and control of the employer not
only as to what shall be done but how it shall be done. The potential employer penalty applies to
all common law employers, including government entities (such as federal, state, local, or Indian
tribal government entities) and nonprofit organizations that are exempt from federal income
taxes.
An independent contractor is a worker who controls what will be done and how it will be done
and for whom the contract dictates the desired result of the work. The IRS provides further
guidance on the distinction between employees and independent contractors.9 An independent
guidance on the distinction between employees and independent contractors.9 An independent contractor would not be considered an employee for the purposes of the employer penalty
calculation.
Generally
In general, the employer of a temporary agency worker is the employing agency rather than the
firm that has contracted with the agency to provide workers on a temporary basis.10
Hours worked by individuals receiving care under the TRICARE program, or individuals enrolled
and receiving coverage through certain health care programs of the Department of Veterans Affairs11 Department of Veterans Affairs11 health care programs,
are excluded from calculations to determine if an employer is large.12 (See Section 4007 of P.L. 114-41.)
When determining whether a firm meets the ACA definition of an applicable large employer, the
hours worked by seasonal employees13employees13 may be treated differently if (1) an employer would be considered a large employer for fewer than 120 days, and (2) for those days the hours worked by seasonal employees are what push the employer's FTE calculation above 50 FTEs.
If these two conditions are met, the employer may exclude the hours worked by seasonal employees and thus would not be considered a large employer. Otherwise, all hours by all employees (including seasonal workers) are applied to determine large
8
The controlled group rule applies under §414(b), (c), (m), or (o) of the IRC and includes employees of partnerships,
proprietorships, etc., which are under common control by one owner or a group of owners.
9
See http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-orEmployee. When in doubt, a business should file an IRS form SS-8 “Determination of Worker Status for Purposes of
Federal Employment Taxes and Income Tax Withholding,” available at http://www.irs.gov/pub/irs-pdf/fss8.pdf.
10
For details, see the discussion of “temporary staffing firms” within the Internal Revenue Service Bulletin 2014-9,
February 24, 2014, http://www.irs.gov/irb/2014-9_IRB/ar05.html.
11
These are the health care programs under Chapters 17 and 18 of 38 U.S.C.
12
Section 4007 of P.L. 114-41. For information on TRICARE, see CRS Report RL33537, Military Medical Care:
Questions and Answers, by Don J. Jansen. For information on health coverage provided by the Department of Veterans
Affairs, see CRS Report R42747, Health Care for Veterans: Answers to Frequently Asked Questions, by Sidath
Viranga Panangala.
13
An employee may be a seasonal employee if the employee is hired into a position for which the customary annual
employment is six months or less and the period of employment begins each calendar year in approximately the same
part of the year (e.g., summer or winter).
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ACA: Employer Shared Responsibility Determinations and Potential Penalties
considered a large employer for fewer than 120 days, and (2) for those days the hours worked by
seasonal employees are what push the employer’s FTE calculation above 50 FTEs.
If these two conditions are met, the employer may exclude the hours worked by seasonal
employees and thus would not be considered a large employer. Otherwise, all hours by all
employees (including seasonal workers) are applied to determine large-employer status.
employer status.
Regardless of whether a large employer offers coverage, it will be potentially liable for a shared
responsibility tax (penalty) only if at least one of its full-time employees obtains coverage through
an exchange and receives a premium tax credit. For purposes of determining the penalty, a "full-timefulltime employee" includes only those individuals working on average 30 hours or more per week.
As shown in Figure 1, part-time workers are notnot included in the penalty calculations (even
though they are included in the determination of a "“large employer"”). An employer will notnot pay a
penalty for any part-time worker even if that part-time employee receives a premium credit. As
discussed under implementation issues below, employers are not likely to pay a penalty based
upon seasonal workers receiving a premium credit if they work less than 30 hours on average
over a pre-specified time period (up to 12 months).
A large employer that does not offer health coverage will be subject to the ACA employer penalty
only if any of its full-time employees obtain coverage through an exchange and receive a
premium tax credit.14
The monthly14
In 2016, the monthly penalty assessed to an employer that does not offer coverage is equal to the
number of its full-time employees minus 30 (the penalty waives the first 80 full-time employees for 2015 only) multiplied by one-twelfth of $2,000160 for any
applicable month.
That penalty will beis indexed by a premium adjustment percentage for each calendar
year.15
14
Individuals who are not offered employer-sponsored coverage and who are not eligible for Medicaid or other
programs may be eligible for premium tax credits for coverage through an exchange. Eligible individuals will generally
have income of at least 100% and up to 400% of the federal poverty level. For details, see CRS Report R44425,
Eligibility and Determination of Health Insurance Premium Tax Credits and Cost-Sharing Subsidies: In Brief, by
Bernadette Fernandez.
15
The premium adjustment percentage is the national average premium growth rate (IRC §4980H(c)(5) and ACA
§1302(c)(4)). The adjustments for 2015 and 2016 were published in Internal Revenue Service Bulletin 2015-87, p. 20 at
https://www.irs.gov/pub/irs-drop/n-15-87.pdf.
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ACA: Employer Shared Responsibility Determinations and Potential Penalties
year.15 Beginning in 2016, the penalty payment amount will be equal to the number of its full-time employees minus 30 multiplied by one-twelfth of the annual penalty.
Example 1: Calculating an Employer Penalty When the Employer
1/12 x (number of full-time employees less
1/12 x (120 - |
Large employers that offer health coverage may face a penalty if the employer'’s coverage fails to
meet one of two criteria: affordability and adequacy.
Employers that offer unaffordable or inadequate health insurance coverage do not meet the
Employers that offer health insurance coverage that is inadequate or unaffordable will not be treated as meeting the employer requirements if at least one full-time employee declines his or herthe coverage and obtains a
premium credit in an exchange plan.
If a penalty is assessed, the (health-coverage providing) employer's monthly penalty is based upon the lesser of two calculations:
After 2015, the penalty amounts will be indexed by a premium adjustment percentage for each subsequent calendar year.16
Example 2: Calculating an Employer Penalty When the Employer
Offers Health Coverage in 2016
A large employer of 200 FTEs (of which 120 are full-time employees) offers adequate (but 95% of its full-time employees. In one month, 77 of the employer’s fulltime employees received a subsidy.
The monthly employer penalty in
1/12 x (number of full-time employees receiving subsidy) x $3, 240=$20,790
or
1/12 x (number of full-time employees less 80) x $2, Since [1/12 x (77) x $3,000] = $19,250 > $6,667 = [1/12 x (120 - 80) x $2,000], the monthly employer penalty would be $6,667. |
As discussed above, the total ACA employer penalty is based on itsthe number of full-time
employees. The ACA specified that working 30 hours or more per week is considered full-time.
However, the statute did not specify what time period (i.e., monthly or annually) employers
would use to determine if a worker is full-time. The ACA directed the Department of Health and
Human Services Secretary and the Labor Secretary and the Department of Labor to provide regulatory guidance to employers to determine full-time status of their employees.17
for
determining their employees’ full-time status.17
As a result, 130 hours of service in a calendar month is treated as the monthly equivalent of at
least 30 hours of service per week, and thesethis 130 hours of service monthly equivalency applies for
both the look-back measurement method and the monthly measurement method for determining
full-time employee status.
Full-Time Work and Full-Time Equivalency:
Federal Law, Statistics, and the ACA Definitions
In federal law, there is no universal standard for full-time work. In certain targeted situations (such as a tax credit),
Some federal statistics (such as the Current Population Survey) classify individuals who work fewer than 35 hours per
Some individuals have suggested that the overtime wage requirements of the Fair Labor Standards Act (FLSA) would 18
The ACA includes a precise measure of full-time employment in 26 U.S.
Elsewhere within the ACA (26 U.S. Code §45R), the small employer health insurance credit uses a different |
per week).
IRS Notice 2014-9 describes methods that an employer may use to determine which employees
are considered full-time employees for purposes of administering the ACA employer penalty
provision.2020 There are three distinct periods in the determination process: measurement, administrative and stability:
The IRS notice then allows the employer to choose different methods of determining the
17
IRC §4980H(c)(4)(B).
For more information on the Fair Labor Standards Act (FLSA), see CRS Report R42713, The Fair Labor Standards
Act (FLSA): An Overview, by David H. Bradley, Benjamin Collins, and Sarah A. Donovan.
19
For information on the potential impact of changing the ACA’s definition of FTE in the employer size calculation,
see CRS In Focus IF10039, Proposals to Change the ACA’s Definition of “Full Time”, by Sean Lowry and Jane G.
Gravelle.
20
See Internal Revenue Service Bulletin 2014-9, at http://www.irs.gov/irb/2014-9_IRB/ar05.html.
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ACA: Employer Shared Responsibility Determinations and Potential Penalties
1. The measurement period is the number of months when an employer calculates
the total number of hours worked by the employee to determine whether the
employee must be considered full-time under the ACA.
2. The administrative period is the amount of time an employer may take to identify
and enroll full-time employees into the health care coverage.
3. The stability period is the amount of time an employer is required to treat all
employees who were determined to be full-time during the measurement period
as full-time under the ACA. An employer may be subject to an ACA penalty
during this stability period if those designated as full-time employees (from the
hours worked during the measurement period) qualify for a health coverage
subsidy during this period (regardless of hours worked during the stability
period).
The IRS notice then allows the employer to choose different methods of determining the
measurement, administrative, and stability periods for three groups of workers:
Measurement Period |
Administrative Period |
Stability Period |
|
Definition |
Measurement Period
Administrative Period
Stability Period
Definition
Measure (on average) |
Identify and enroll full-time employees |
time
Identify and enroll full-time
employees
Penalty may be due |
Ongoing employees |
|
Up to 90 days (may neither reduce nor lengthen the measurement or stability period—can overlap prior stability period) |
At least 6 months but cannot be shorter in duration than measurement period |
measurement period
New employees hired |
Not applicable |
Up to 90 days to enroll |
Not applicable |
New variable hour and seasonal employees |
| seasonal employees
3 to 12 monthsb
Up to 90 days | 3 to 12 months but cannot |
Source: CRS interpretation of Internal Revenue Service Notice 2014-9 http://www.irs.gov/irb/2014-9_IRB/ar05.html.
a.
.
a. For ongoing employees, this is referred to as the "standard"standard measurement period.
b.
b. For new employees, this is referred to as the "initial"initial measurement period.
c.
c. The initial measurement and administrative period cannot last beyond the final day of the first calendar
month beginning on or after the first anniversary of the employee'’s hiring (approximately 13 months).
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ACA: Employer Shared Responsibility Determinations and Potential Penalties
Ongoing Employees
An ongoing employee is an employee who has been employed for at least one complete standard
measurement period. This is a defined period of between three3 and 12 consecutive months. (See the
transition relief subsection "“Measurement Period"” for an alternative measurement for 2015 only.)
An employer determines each ongoing employee'’s status by looking back at the standard
measurement period. The employer has the flexibility to determine the months when the standard
measurement period starts and ends, provided that the determination is made on a uniform and
consistent basis for all employees in the same category. During a measurement period, the
employer determines if the employee worked on average at least 30 hours per week per month.
If the employer determines that an employee averaged at least 30 hours per week, then the
employer treats the employee as a full-time employee during a subsequent "stability period"
regardless of the number of hours the employee works during the stability period—so long as he
or she remains an employee.2121 An employer can be subject to a penalty only during the stability
period.22
22
Employers may create different measurement and stability periods for the following categories of
ongoing employees:
Employers may opt to use an administrative period (between the measurement and stability
periods) to determine which ongoing employees are eligible for coverage and to notify and enroll
employees in health care plans.23
If an employee is reasonably expected at his or her start date to work full-time, an employer must
either offer affordable health coverage within three calendar months of the worker'’s start date or
face a potential shared responsibility penalty. This applies to new workers who are expected to work full-time.
The regulations provide that a new employee is a variable hour employee if it cannot be
determined that the employee is reasonably expected to be employed on average at least 30 hours
21
A stability period must be at least six consecutive calendar months and may not be shorter than the standard
measurement period designated by the employer.
22
This would require that the employer had at least one full-time employee who entered the exchange and received a
premium tax credit and any health insurance coverage offered was not adequate or affordable.
23
Any administrative period between the standard measurement period and stability period may neither reduce nor
lengthen the measurement period or stability period. The administrative period following the standard measurement
period may last up to 90 days, and it overlaps with the prior stability period to prevent any gaps in coverage.
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ACA: Employer Shared Responsibility Determinations and Potential Penalties
per week. In some cases, variable hour employees might not work the necessary 30 hours on
average over a specified time period (up to 12 months) to be considered full-time.
A new employee who is expected to be employed initially at least 30 hours per week may be a
variable hour employee as long as the period of employment at more than 30 hours per week is
reasonably expected to be of limited duration.
Seasonal Workers
In general, under the ACA an employee may be a seasonal employee if the employee is hired into
a position for which the customary annual employment is six months or less and the period of
employment begins each calendar year in approximately the same part of the year (e.g., summer
or winter). The ACA treats work hours done by seasonal employeesseasonal employees’ work hours differently when determining large
employer status (where all hours done by seasonal workers are included in the calculation except
as described in the "“Calculating Large Employer Status When the Firm Employs Seasonal Workers"
Workers” section) and whenfor calculating whether an employee is a’s full-time worker.
When determining how many employees are consideredthe number of full-time employees for purposes of applying the employer
penalty, the final regulations allow employers to employ a look-back measurement period of up to
12 months for determining if seasonal employees are full-time employees. The ability of
employers to use a 12-month measurement period for seasonal employees (who by definition
work usually fewer than six months per year at the job) effectively allows most firms to not consider exclude
seasonal workers as full-time workers even if the worked hours counted toward the calculation of whether the employer is a large employer.
The Treasury Department and the IRS continue to consider additional rules for the determination of hours determining hours
of service for purposes of Section 4980H with respect toregarding certain categories of employees. As of the date of this report, theThe IRS
guidance forrequires employers to determine full-time status for adjunct faculty, employees with
layover hours (including the airline industry), and employersemployees with on-call hours is that employers are required to use a " to use a
“reasonable method"” of crediting hours of service that is consistent with Section 4980H.
of the
IRC.
The guidance states that it would not be reasonable for an employer to not credit an employee
with an hour of service for any on-call hour if
In addition, employers of other employees whose hours of service are particularly challenging to
identify or track or for whom the final regulations'’ general rules for determining hours of service
present special difficulties (e.g., commissioned sales) are also required to use a "reasonable method"“reasonable
method” of crediting hours.
The hours of service performed in certain capacities do not count as an hour of service for
determining either employer size or full-time status. In particular, the hours worked by unpaid
volunteers and certain nominally compensated volunteers (including some volunteer firefighters24)
firefighters)24 are excluded from ACA calculations.
Student Workers
The hours worked by students in positions subsidized through the federal work study program (or
equivalent) are excluded infrom ACA calculations. However, the final regulations do not expand
this exclusion into a general exception for all student employees. All hours of service for which a
student employee of an educational organization (or of an outside employer) is paid or entitled to
payment in a capacity other than through the federal work study program (or equivalent) are
required to be counted as hours of service for Section 4980H purposes.
Religious Orders
The Treasury Department and the IRS continue to consider additional rules for the determination of hours determining hours
of service for purposes of Section 4980H with respect toof the IRC regarding hours worked by members of
religious orders for the orders to which they belong. Until further guidance is issued, a religious order is permitted, for purposes of
determining whether an employee is a full-time employee under Section 4980H, to not count as
an hour of service any work performed by an individual who is subject to a vow of poverty as a
member of that order when the work is in the performance of tasks usually required (and to the
extent usually required) of an active member of the order.
To fulfill the shared responsibility requirements, employers must provide health insurance
coverage that is both affordable and adequate coverage toto full-time employees and their dependents.
For purposes of the employer shared responsibility provision, the term dependentprovision, the term dependent means a child of an employee under 26 years old.25 of an
employee.25 Absent knowledge to the contrary, applicable large employers may rely on an employee'
employee’s representation about that employee'’s children and the ages of those childrentheir ages. The term dependent dependent
does not include the spouse of an employee.
Employers and employees face different determinations of "affordable" coverage.
How Could an Employee's Household Income Be Less Than Wages?
|
”
Affordability is determined at an individual level. The definition of "affordable"affordable—for both an
individual employee and a family—is based only on the cost of individual-only coverage and
does not take into consideration the often significantly higher cost of a family plan.
Under the ACA, a plan is considered to provide adequate coverage (also called minimum value) if
the plan'’s actuarial value (i.e., share of the total allowed costs that the plan is expected to cover)
is at least 60%.27
27
The actuarial value calculation for determining minimum value includes the employer employer
contributions to health savings accounts and health reimbursement accounts that are part of a high
deductible health plan.
The ACA, as written, required that the employer shared responsibilities begin to be implemented
in 2014. However, the IRS delayed the employer mandate implementation until 2015.28 There are28 There
were up to three forms of transition relief available for employers in 2015.2929 First, large employer
status determination may usewas allowed to have a measurement period as short as six consecutive
months. Second, there iswas an additional year to expand the 2015 health plans to include
dependent coverage. Finally, for employers with fewer than 100 FTEs, the ACA employer penalty will
did not apply in 2015. (For details see the following section "“Employers with Fewer Than 100 FTEs.")
FTEs.”)
In addition, there were similar delays in the employer reporting requirements for 2014. Beginning
in 2015, a large employer must file a return with the IRS reporting certain information about the
health care coverage the employer offered to each full-time employee (or alternatively, that the
employer did not offer health care coverage to that employee).3030 Additionally, large employers
must furnish a similar statement to each full-time employee by January 31 of the following
calendar year.3131 (See Appendix A for details.)
Rather
Measurement Period
In 2015, rather than being required to use the full 12 months of 2014 to measure whether an
employer has 50 FTEs, an employer maywas allowed to measure any consecutive six-month period
during 2014.
Dependent Coverage
An employer that takestook steps toward offering dependent health coverage in 2015 will not be subject was not subject
to the ACA employer penalty solely on account of a failure to offer coverage to dependents for
that plan year. This transition relief appliesapplied to health plans offered by an employer if
Employers cancould qualify for the dependent coverage transition relief only for those dependents
who were without an offer of coverage from the employer in both the 2013 and 2014 plan years
and if the employer hashad taken steps in either the 2014 or 2015 plan year (or both) to extend
coverage to dependents not offered coverage in 2013 or 2014.
For employers with fewer than 100 FTEs in 2014, the ACA employer penalty willdid not apply for
any calendar month during the 2015 plan year, including the months during the plan year that fall fell
in 2015. This transition relief appliesapplied only if the workforce size iswas fewer than 100 FTEs, the
employer hashad not reduced its workforce size to qualify for relief, and the employer maintains maintained
health care coverage in 2015 that had been offered in 2014.
The employer must employhave employed on average at least 50 FTEs but fewer than 100 FTEs on
business days during 2014 in order to qualify for transition relief. The number of full-time
employees (including FTEs) iswas determined in accordance with the otherwise applicable rules in
the final regulations for determining status as an applicable large employer.
The employer cannotcould not reduce the size of its workforce or the overall hours of service of its
employees in order to qualify for the transition relief. However, an employer that reduces reduced
workforce size or overall hours of service for bona fide business reasons iswas still eligible for the
relief.
In order to qualify for transition relief, the employer cannot
The employer could not eliminate or materially reduce the health coverage, if any, it offered as of
February 9, 2014, in order to qualify for transition relief. The maintenance requirement must behave
been met for the period beginning on February 9, 2014, and ending on December 31, 2015.
(Employers with non-calendar-year plans must meethave met the maintenance requirement through
the last day of the 2015 plan year.)
An employer willwas not be treated as eliminating or materially reducing health coverage if any of these
conditions arewere met:
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ACA: Employer Shared Responsibility Determinations and Potential Penalties
Appendix A. Employer Reporting and Other
Requirements
Employer Reporting and Other Requirements
Under Section 6056 of the IRC, a large employer must file a return with the IRS reporting certain
information about the health care coverage the employer offered to each full-time employee (or
alternatively, that the employer did not offer health care coverage to that employee).32 Additionally, 32 In addition,
Section 6051(a)(14) of the IRC requires that large employers must furnish a similar statement to
each full-time employee by January 31 of the following calendar year.33
33
In summary, large employers must provide the following information to their full-time employees34 in 2015:
Large employers must provide the following to the IRS:
In addition, the employer must also provide each full-time employee the following:
If an employer's workers are covered by the FLSA and the employer has more than 200 full-time employees, the employer will face additional requirements in Section 18B the FLSA once regulations are finalized. The employers will be required to automatically enroll new full-time employees in one of the employer's health coverage plans and to continue the enrollment of current employees in health coverage plans offered through the employer. Additionally, requiring employers must provide adequate notice and the opportunity for an employee to opt out of any coverage in which the employee was automatically enrolled.36
Related Legislative Activity in the 114th Congress
In the 114th35
32
See https://www.federalregister.gov/articles/2014/03/10/2014-05050/information-reporting-by-applicable-largeemployers-on-health-insurance-coverage-offered-under.
33
See http://www.irs.gov/Affordable-Care-Act/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage.
34
For model coverage notices see http://www.dol.gov/ebsa/healthreform/regulations/coverageoptionsnotice.html.
35
For a detailed example see http://www.irs.gov/Affordable-Care-Act/Form-W-2-Reporting-of-Employer-SponsoredHealth-Coverage.
Congressional Research Service
15
ACA: Employer Shared Responsibility Determinations and Potential Penalties
Once regulations are finalized, if an employer’s workers are covered by the Fair Labor Standards
Act36 (FLSA) and the employer has more than 200 full-time employees, the employer will face
additional requirements.37
Employers will be required to automatically enroll new full-time employees in
one of their health coverage plans and continue the enrollment of current
employees.
Employers must provide adequate notice and the opportunity for an employee to
opt out of any automatically enrolled coverage.38
36
See CRS Report R42713, The Fair Labor Standards Act (FLSA): An Overview, by David H. Bradley, Benjamin
Collins, and Sarah A. Donovan.
37
29 U.S.C §218b.
38
Employee Benefits Security Administration, EBSA Technical Release No. 2013-02, 2013, http://www.dol.gov/ebsa/
newsroom/tr13-02.html. It remains the Department of Labor’s view that, until final regulations under 29 U.S.C. §218b
are issued and become applicable, employers are not required to comply with 29 U.S.C. §218b.
Congressional Research Service
16
ACA: Employer Shared Responsibility Determinations and Potential Penalties
Appendix B. Related Legislative Activity in the
114th Congress
In the 114th Congress, Section 4007 of P.L. 114-41 (Surface Transportation and Veterans Health
Care Choice Improvement Act of 2015, signed into law on July 31, 2015) created a new
requirement that hours worked by individuals receiving care under the TRICARE program, or
individuals enrolled and receiving coverage through certain health care programs of the
Department of Veterans Affairs37Affairs39 are excluded from calculations to determine if an employer is
large.40
In the 114thlarge.38
In the 114th Congress, to date, 27many bills have been introduced related to the employer mandate. Of those bills, three would alter the definition of full-time work and seven would repeal the employer mandate
(including H.R. 3236, which was signed into law as P.L. 114-41). See Table B-1 for details.
Table B-1. Related Legislative Activity in the 114th Congress
Bill
Title
Summarya
Lead Sponsor
H.R. 22
Developing a
Reliable and
Innovative Vision
for the Economy
Act
This bill amends the Internal Revenue Code (IRC) to add
a provision to exempt any employee with coverage under
a health care program administered by the Department
of Defense, including the TRICARE program, or by the
Veterans Administration [sic], from classification as an
eligible employee of an applicable large employer for
purposes of the employer mandate under the Patient
Protection and Affordable Care Act (ACA) to provide
such employees with minimum essential health care
Table B-1. Related Legislative Activity in the 114th Congress
Bill |
Title |
|
Lead Sponsor |
Developing a Reliable and Innovative Vision for the Economy Act |
This bill amends the Internal Revenue Code (IRC) to add a provision to exempt any employee with coverage under a health care program administered by the Department of Defense, including the TRICARE program, or by the Veterans Administration [sic], from classification as an eligible employee of an applicable large employer for purposes of the employer mandate under the Patient Protection and Affordable Care Act (ACA) to provide such employees with minimum essential health care coverage. (P.L. 114-41 contains similar language.) |
Rep. Rodney Davis |
|
Save American Workers Act of 2015 |
coverage. (P.L. 114-41 contains similar language.)
Rep. Rodney Davis
H.R. 30
Save American
Workers Act of
2015
This bill amends the IRC to change the definition of |
Rep. Todd Young |
|
Student Worker Exemption Act of 2015 |
of 2015
Amends the IRC to exclude students who are employed |
Rep. Meadows |
|
American Job Protection Act |
Protection Act
Amends the IRC to repeal provisions added by the ACA |
Rep. Boustany |
|
Helping Individuals Regain Employment Act |
Amends the IRC to exclude from the definition of |
Rep. Boustany |
|
Rep. Boustany
H.R. 519
Healthcare Tax |
|
Rep. Turner |
|
Health Care Choice Act of 2015 |
|
Rep. Blackburn |
|
Safeguarding Classrooms Hurt by Obama Care's Obligatory Levies |
”
Rep. Blackburn
H.R. 769
Safeguarding
Classrooms
Hurt by Obama
Care’s
Obligatory
Levies
Amends the IRC to exclude any elementary or secondary |
Rep. Messer |
|
| Amends the IRC to exempt seasonal employees from the |
Rep. Renacci |
|
American Health Security Act of 2015 |
|
Rep. McDermott |
|
Fairness for Farmers Act of 2015 |
Amends the IRC to exclude nonimmigrant agricultural |
Rep. Ellmers |
|
Protecting Affordable Coverage for Employees Act |
Employees Act
This bill amends the ACA and Public Health Service Act |
Rep. Guthrie |
|
Protecting Volunteer Firefighters and Emergency Responders Act |
Rep. Guthrie
Congressional Research Service
Lead Sponsor
18
ACA: Employer Shared Responsibility Determinations and Potential Penalties
Bill
Title
Summarya
H.R. 2658
Protecting
Volunteer
Firefighters and
Emergency
Responders Act
This bill amends the IRC to exclude services rendered by |
Rep. Barletta |
|
Small Business Job Protection Act |
Amends the IRC, as amended by the ACA, to redefine |
Rep. Messer |
|
Tribal Employment and Jobs Protection Act |
This bill amends the IRC to exclude from the definition of |
Rep. Noem |
|
Hire More Heroes Act of 2015 |
|
Rep. Davis |
|
Hire More Heroes Act of 2015 |
This bill amends the IRC to add a provision to exempt |
Sen. Blunt |
|
Forty Hours is Full Time Act of 2015 |
Sen. Blunt
Congressional Research Service
Lead Sponsor
19
ACA: Employer Shared Responsibility Determinations and Potential Penalties
Bill
Title
Summarya
S. 30
Forty Hours is
Full Time Act of
2015
Amends the IRC, with respect to the employer mandate |
Sen. Collins |
|
Helping Individuals Regain Employment Act |
Amends the IRC to exclude from the definition of |
Sen. Thune |
|
Sen. Thune
S. 157
No Obamacare |
|
Sen. Cassidy |
|
”
Sen. Cassidy
S. 305
American Job |
Repeals provisions of the IRC, as added by the ACA, that |
Sen. Hatch |
|
Protecting Volunteer Firefighters and Emergency Responders Act |
This bill amends the IRC to exclude services rendered by |
Sen. Toomey |
|
Small Business Fairness in Health Care Act |
Health Care Act
Amends the IRC, as amended by the ACA, to (1) exempt |
Sen. Enzi |
|
Safeguarding Classrooms Hurt by ObamaCare's Obligatory Levies |
Sen. Enzi
S. 470
Safeguarding
Classrooms
Hurt by
ObamaCare’s
Obligatory
Levies
Amends the IRC to exclude any elementary or secondary |
Sen. Thune |
|
Health Care Choice Act of 2015 |
Sen. Thune
Congressional Research Service
Lead Sponsor
20
ACA: Employer Shared Responsibility Determinations and Potential Penalties
Bill
Title
Summarya
Lead Sponsor
S. 647
Health Care
Choice Act of
2015
Repeals the health insurance and health coverage |
Sen. Cruz |
|
S.S. 1415 |
Small Business Stability Act |
Stability Act
Amends the IRC to modify the definition of |
Sen. Heitkamp |
|
Act
This bill amends the IRC to exclude from the definition of |
Sen. Daines |
Source: Congressional Research Service.
a.
The summaries are taken from Congress.gov, and they only include information about the provisions in the bill related to the employer mandate.
Author Contact Information
1. |
For information on the individual shared responsibility provisions, see CRS Report R41331, Individual Mandate Under ACA, by [author name scrubbed]. |
2. |
For more information about exchanges under the ACA, see CRS Report R44065, Overview of Health Insurance Exchanges, coordinated by [author name scrubbed]. For more information on premium credits in particular, see CRS Report R41137, Health Insurance Premium Credits in the Patient Protection and Affordable Care Act (ACA) in 2014, by [author name scrubbed] and CRS Report R43833, Premium Tax Credits and Federal Health Insurance Exchanges: Questions and Answers, by [author name scrubbed] et al. |
3. |
Internal Revenue Code (IRC) §4980H(c)(2), as amended by §1513 and §10106 of the ACA, and as amended and renumbered by §1003 of P.L. 111-152. The statute uses the term full-time employee in the definition of large employer but then expands on the definition of large employer to include both full- and part-time workers. For employers not in existence throughout the preceding calendar year, the determination of whether an employer is large is based on the average number of employees a firm reasonably expected to be employed on business days in the current calendar year. Any reference to an employer includes a reference to any predecessor of that employer. |
4. |
IRC §4980H(c)(4). |
5. |
Section 4980H(c)(2)(E) specifies that for purposes of determining FTEs, the aggregate number of hours of service of employees who are not full-time employees for the month is divided by 120 to get an FTE. However, for purposess of determining who is a full-time worker for the assessment of the actual penalty, proposed regulations released on December 28, 2012, would treat 130 hours of service in a calendar month as the monthly equivalent of 30 hours of service per week (52 x 30). Thus, a worker who worked 130 hours a month would be considered full-time for purposes of the penalty payment. |
6. |
For information on a potential impact of the ACA provisions on smaller (but potentially determined to be large for the purpose of the ACA) businesses, see CRS Report R43181, The Affordable Care Act and Small Business: Economic Issues, by [author name scrubbed] and [author name scrubbed]. |
7. |
IRC §4980H(c)(2)(B). An employer will not be considered a large employer if its number of FTEs exceeds 50 for 120 days or less and it is solely the employment of seasonal workers that pushes the employer into the large employer designation. |
8. |
The controlled group rule applies under §414(b), (c), (m), or (o) of the IRC and includes employees of partnerships, proprietorships, etc., which are under common control by one owner or a group of owners. |
9. |
See http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee. When in doubt, a business should file an IRS form SS-8 "Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding," available at http://www.irs.gov/pub/irs-pdf/fss8.pdf. |
10. |
For details, see the discussion of "temporary staffing firms" within the Internal Revenue Service Bulletin 2014-9, February 24, 2014, http://www.irs.gov/irb/2014-9_IRB/ar05.html. |
11. |
These are the health care programs under Chapters 17 and 18 of 38 U.S.C. |
12. |
For information on TRICARE, see CRS Report RL33537, Military Medical Care: Questions and Answers, by [author name scrubbed]. For information on health coverage provided by the Veterans Affairs, see CRS Report R42747, Health Care for Veterans: Answers to Frequently Asked Questions, by [author name scrubbed]. |
13. |
An employee may be a seasonal employee if the employee is hired into a position for which the customary annual employment is six months or less and the period of employment begins each calendar year in approximately the same part of the year (e.g., summer or winter). |
14. |
Individuals who are not offered employer-sponsored coverage and who are not eligible for Medicaid or other programs may be eligible for premium tax credits for coverage through an exchange. Eligible individuals will generally have income of at least 100% and up to 400% of the federal poverty level. For details, see CRS Report R41137, Health Insurance Premium Credits in the Patient Protection and Affordable Care Act (ACA) in 2014, by [author name scrubbed]. |
15. |
The premium adjustment percentage is the national average premium growth rate (IRC §4980H(c)(5) and ACA §1302(c)(4)). |
16. |
Ibid. |
17. |
IRC §4980H(c)(4)(B). |
18. |
For more information on FLSA, see CRS Report R42713, The Fair Labor Standards Act (FLSA): An Overview, by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. |
19. |
For information on the potential impact of changing the ACA's definition of FTE in the employer size calculation, see CRS In Focus IF10039, Proposals to Change the ACA's Definition of "Full Time", by [author name scrubbed] and [author name scrubbed]. |
20. |
See Internal Revenue Service Bulletin 2014-9, http://www.irs.gov/irb/2014-9_IRB/ar05.html. |
21. |
A stability period must be at least six consecutive calendar months and may not be shorter than the standard measurement period designated by the employer. |
22. |
This would require that the employer had at least one full-time employee who entered the exchange and received a premium tax credit and any health insurance coverage offered was not adequate or affordable. |
23. |
Any administrative period between the standard measurement period and stability period may neither reduce nor lengthen the measurement period or stability period. The administrative period following the standard measurement period may last up to 90 days, and it overlaps with the prior stability period to prevent any gaps in coverage. |
24. |
The final regulations provide that hours of service do not include hours worked as a "bona fide volunteer." For this purpose, the definition of "bona fide volunteer" is generally based on the definition of that term for purposes of §457(e)(11)(B)(i), which provides special rules for length-of-service awards offered to certain volunteer firefighters and emergency medical providers under a municipal deferred compensation plan. For purposes of §4980H, however, bona fide volunteers include any volunteer who is an employee of a government entity or an organization described in §501(c) that is exempt from taxation under §501(a) whose only compensation from that entity or organization is in the form of (1) reimbursement for (or reasonable allowance for) reasonable expenses incurred in the performance of services by volunteers, or (2) reasonable benefits (including length of service awards), and nominal fees, customarily paid by similar entities in connection with the performance of services by volunteers. |
25. |
For more information about dependent coverage under ACA, see CRS Report R41220, Preexisting Condition Exclusion Provisions for Children and Dependent Coverage under the Patient Protection and Affordable Care Act (ACA), by [author name scrubbed]. |
26. |
Although the determination of whether an employer met the safe-harbor provision would be made after the end of the calendar year, an employer could also use the safe harbor prospectively, at the beginning of the year, by structuring its plan and operations to set the employee contribution at a level so that the employee contribution for each employee would not exceed 9.5% of the employee's W-2 wages for that year. |
27. |
Actuarial value is a summary measure of a plan's generosity, expressed as a percentage of medical expense estimated to be paid by the issuer for a standard population and set of allowed charges. Actuarial value reflects the relative share of cost-sharing that may be imposed. On average, the higher the actuarial value of a plan, the lower the cost-sharing for the enrollee. Actuarial value does not consider the cost of premiums and the adequacy of provider networks. Plans with the same actuarial value do not necessarily include the same set of covered benefits. |
28. |
See Internal Revenue Service (IRS), Transition Relief for 2014 Under §§6055 (§6055 Information Reporting), 6056 (§6056 Information Reporting) and 4980H (Employer Shared Responsibility Provisions), Internal Revenue Bulletin: 2013-31, June 29, 2013, http://www.irs.gov/irb/2013-31_IRB/ar08.html. |
29. |
See IRS, "26 CFR Parts 1, 54, and 301, Shared Responsibility for Employers," 79 Federal Register 8544-8601, February 12, 2014. For details on transition relief for 2014 and 2015, see IRS, "Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act," http://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act#Transition. |
30. |
Section 6056 of the IRC. See https://www.federalregister.gov/articles/2014/03/10/2014-05050/information-reporting-by-applicable-large-employers-on-health-insurance-coverage-offered-under. |
31. |
Section 6051(a)(14) of the IRC. See http://www.irs.gov/Affordable-Care-Act/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage. |
32. | |
33. |
See http://www.irs.gov/Affordable-Care-Act/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage. |
34. |
For model coverage notices see http://www.dol.gov/ebsa/healthreform/regulations/coverageoptionsnotice.html. |
35. |
For a detailed example see http://www.irs.gov/Affordable-Care-Act/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage. |
36. |
Employee Benefits Security Administration, EBSA Technical Release No. 2012-01, 2012, http://www.dol.gov/ebsa/newsroom/tr12-01.html. It remains the Department of Labor's view that, until final regulations under FLSA §18A are issued and become applicable, employers are not required to comply with FLSA §18A. |
37. |
These are the health care programs under health care programs under Chapters 17 or 18 of 38 U.S.C. |
38. |
For information on TRICARE, see CRS Report RL33537, Military Medical Care: Questions and Answers, by [author name scrubbed]. For information on health coverage provided by the Department of Veterans Affairs, see CRS Report R42747, Health Care for Veterans: Answers to Frequently Asked Questions, by [author name scrubbed]. |