IRS Releases 2019 Coverage Affordability Rate for Premium Tax Credit, Employer Mandate Penalty, and Exchange Notice Purposes

IRS Releases 2019 Coverage Affordability Rate for Premium Tax Credit, Employer Mandate Penalty, and Exchange Notice Purposes

  • Posted by Jessica Waltman
  • On June 12, 2018

The Internal Revenue Service (IRS) recently set the “affordability” percentage for employer-sponsored coverage at 9.86 percent of household income for the tax year 2019.  This information is essential for businesses of all sizes that sponsor employer coverage to know because it impacts the potential eligibility of all employees for the Patient Protection and Affordable Care Act’s (ACA) premium tax credits.

The ACA establishes that any person who has been offered employer-sponsored coverage only qualifies for a premium tax credit subsidy from a health insurance exchange if their share of the employer-group coverage offered to them is “unaffordable.”  Each year, the IRS sets a percentage of household income for group health plan sponsors, employees, the health insurance exchanges, and to use to determine if an employee’s coverage meets this “affordability test.”  If your business is an applicable large employer (ALE) that is subject to the ACA’s employer shared responsibility provisions (employer mandate), then you need to use this percentage to develop your premium contribution rates for the 2019 plan year.  ALEs also need to use the annual affordability percentage when determining which affordability safe harbor (Federal Poverty Line, Rate of Pay, or W-2) to apply for 2019 employer reporting purposes.

ALEs must report the safe harbor(s) they select on their Forms 1094/1095 C.  If an employer meets safe harbor requirements, then they are protected from employer mandate penalty liability even if a health insurance exchange ever decides that the cost of their coverage is actually unaffordable for one or more of their employees because the exchange reviewed and judged the employee’s complete household income.

However, any company that offers group health insurance coverage should keep track of whether or not the coverage they provide meets the annual affordability standard, so that they can share the information with employees who might be interested in exchange-based individual coverage and premium tax credits.  Plus, employers of all sizes that are subject to the Fair Labor Standards Act must report on the affordability and minimum value status of the coverage they offer in their annual exchange notice they must provide to all employees within 14 days of hire.

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