Compliance Alert: IRS Releases Affordability Percentage Adjustment for 2023 | woodruff sawyer
*Section 4980H (a) and (b) penalties for 2023 are projected.
**No employer shared liability penalties were assessed for 2014.
Under the ACA, relevant large employers (LEAs) must offer affordable health insurance coverage to full-time employees. If the LTA does not provide affordable coverage, it may be subject to an employer shared responsibility payment. An ALE is an employer who employed an average of 50 or more full-time equivalent employees in the previous calendar year. Coverage is considered affordable if the employee’s required contribution for personal coverage only on the employer’s least expensive minimum value plan does not exceed 9.12% of the employee’s household income in 2023 ( previous years listed above). An FTA can rely on one or more safe harbors to determine if coverage is affordable: W-2, pay rate, and federal poverty level.
If the employer’s coverage is not affordable under one of the safe harbors and a full-time employee is approved for a premium tax credit for Marketplace coverage, the employer may be subject to a shared responsibility payment from the employer. As of 2019, the individual mandate penalty imposed on individual taxpayers for failing to qualify for medical coverage was reduced to $0 under the Tax Cuts and Jobs Act, repealing the federal individual mandate. A previous lawsuit challenging the constitutionality of the ACA because of this modification of the individual warrant sentence was unsuccessful. The employer mandate has not been revoked and the IRS continues to enforce it through letter 226J. The IRS is currently applying employer shared responsibility payments for the 2019 and 2020 tax years.
Next steps for employers
This is a significant adjustment to the affordability threshold. Large employers affected should be aware of the updated reduced affordability percentage for plan years beginning in 2023 and should consider this along with all other relevant factors when setting contributions.