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Final Regs on Health Care Reform Large Employer Penalties Include New Transition Relief Easing Employers Into Compliance

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The IRS issued final regulations implementing the employer shared responsibility penalties on February 12, 2014.  As promised in an earlier post, I have updated our Checklist for Employers to reflect the final regulations.  Although the Checklist explains many of the transition rules, below is a summary of what I think are two of the most important new rules:

  • Transition relief for employers with 50-99 employees in 2014:  The large employer penalties will generally apply to employers with 100 or more full-time employees starting in 2015 and employers with 50 or more full-time employees starting in 2016. This new rule is great news for employers with 50-99 employees in 2014.  Employers must meet very detailed requirements to qualify for this one-year delay, including certifying that they have not laid-off employees to drop below the 100 employee threshold.  See pages 3 to 4 of the Checklist for Employers for more information about this new rule.
  • Substantially all normally means 95% but means 70% for 2015:  To avoid a payment for failing to offer health coverage, large employers need to offer coverage to substantially all of their full-time employees and their dependents.  In 2015 “substantially all” means 70% and in 2016 and beyond it means 95%.  The proposed regulations used a 95% test, so I was pretty happy to see a 70% test in the final regulations.  Reducing the coverage standard to 70% for 2015 will make it much easier to avoid the subsection (a) penalty in 2015, but employers should recognize that not offering coverage to some full-time employees could result in having to pay a subsection (b) penalty with respect to full-time employees who receive a premium tax credit to help pay for coverage through a Marketplace.

For more information on these rules, please see my Checklist for Employers, the final regulations, and the IRS Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act.  Next week I plan to post about the key transition rules from the proposed regulations that the final regulations extended to 2015.