I have this employee that wants to opt out of the employer coverage because he qualifies for a subsidy. His premium is more that 9.5% of his income from that job. But he also has a side job with a different company. The 9.5% is based only the job that is offering the coverage they don't take in consideration his other income will they?
Employee Wants to Opt Out?
- Thread starter SamIam
- Start date
It's not the total premium. It's only when the employee's share of the lowest cost self-only plan available that meets minimum value exceeds 9.66% of MAGI.
"Employee's share" = Only the portion the employee is responsible for paying.
"Lowest Cost Self-Only Plan" = Not necessarily the one they're enrolled in.
"Minimum Value" = 60% coverage value (Bronze level).
"MAGI" = Adjusted Gross Income from all tax returns filed within the household (all jobs) + tax-exempt interest + foreign income.
"Employee's share" = Only the portion the employee is responsible for paying.
"Lowest Cost Self-Only Plan" = Not necessarily the one they're enrolled in.
"Minimum Value" = 60% coverage value (Bronze level).
"MAGI" = Adjusted Gross Income from all tax returns filed within the household (all jobs) + tax-exempt interest + foreign income.
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For the subsidy, the affordable calculation uses 9.66% in 2016. It was 9.56% in 2015. It was 9.5% in 2014.
For the subsidy, the 9.66% is based on HOUSEHOLD income.
The reason the employer used 9.5%, and used the Employee's Box 1 W2 wage from that job only, is because that is the way "affordable" is defined for the EMPLOYER penalty.
For the subsidy, the 9.66% is based on HOUSEHOLD income.
The reason the employer used 9.5%, and used the Employee's Box 1 W2 wage from that job only, is because that is the way "affordable" is defined for the EMPLOYER penalty.
Ann,
9.5% of W2 wage is the safe harbor calculation, since employers generally don't know the household income. The employer won't be penalized unless it's un-affordable based on household income (specifically, the least expensive compliant plan, individual-only premium). (If affordable by the safe harbor, there's no way it's unaffordable by the real calculation)
Actually, I have several cases where it is unaffordable by the real calculation (meaning the 9.66% of Household Income calculation for a person wanting a subsidy). For instance, I have a family where the wife has Employer Sponsored Insurance, and it meets the Employer's Safe Harbor test that you so accurately explained above. However, the husband started a business and has a business loss, making the Household Income much less. They also have HSA accounts, and some other deductions that are applied before AGI is calculated at line 37 of the Federal Form 1040. So, the Household MAGI is low enough that the wife's employer's insurance plan is "unaffordable" for them at the 9.66% test. It's not the usual case, but actually not that rare. I have a few of these cases.
Going to be fun to see if IRS chooses to pursue those who were compliant by safe harbor guidance, but non-compliant by the measure that actually matters.
Funny, isn't it? The govt makes a law that no employer could comply with (because they don't know each employee's personal household financial information), then the govt has to to give out a safe harbor like this.
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