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It was just beginning to catch on that employee contributions can be no more than 9.5% of earnings. This week the IRS announced that, due to inflation indexing for 2015, this is now 9.56% of earnings for single coverage. As we get closer to the delayed first employer shared- responsibility mandate (over 100 FTEs)—effective January 1, 2015—employers are looking closely at the rules.
For purposes of the law, affordability is based on an individual's household income (Modified Adjusted Gross Income or MAGI). MAGI is calculated based on tax returns.
The IRS provides employers with three safe harbor methods to calculate income to which the 9.56% is applied, since they have no way to calculate MAGI:
Rate of Pay multiplied by 130 hours per month
Federal Poverty Line
Form W-2 as reported in Box 1 in the previous calendar year. The employee's required contribution must remain a consistent amount or a consistent percentage of all Form W-2 wages during the year.
Some points to consider:
Affordability is applicable to the lowest-cost plan meeting minimum essential benefits standards. This can be a very low-cost plan.
Affordability is based on Employee-Only coverage. There is no mandate for the cost of dependent coverage, and there is no requirement that coverage be offered at all to spouses.
Affordability only impacts the less-significant $3,000 penalty, which only applies to employees actually applying for coverage on the exchange and receiving a credit. Many employers are deciding to roll the dice on this penalty.
Talk to a qualified consultant. The value has never been more evident
Affordability: The IRS Speaks Again
For purposes of the law, affordability is based on an individual's household income (Modified Adjusted Gross Income or MAGI). MAGI is calculated based on tax returns.
The IRS provides employers with three safe harbor methods to calculate income to which the 9.56% is applied, since they have no way to calculate MAGI:
Rate of Pay multiplied by 130 hours per monthFederal Poverty LineForm W-2 as reported in Box 1 in the previous calendar year. The employee's required contribution must remain a consistent amount or a consistent percentage of all Form W-2 wages during the year.Some points to consider:
Affordability is applicable to the lowest-cost plan meeting minimum essential benefits standards. This can be a very low-cost plan.
Affordability is based on Employee-Only coverage. There is no mandate for the cost of dependent coverage, and there is no requirement that coverage be offered at all to spouses.
Affordability only impacts the less-significant $3,000 penalty, which only applies to employees actually applying for coverage on the exchange and receiving a credit. Many employers are deciding to roll the dice on this penalty.
Talk to a qualified consultant. The value has never been more evident
Affordability: The IRS Speaks Again
