Are you sure your dealership is in compliance? Have you received an IRS 226J letter? IRS Penalties for ALE’s (Applicable Large Group Employers) not offering Affordable Health Coverage? Background As the IRS continues to actively enforce the employer shared responsibility payments and associated employer reporting requirements, we are reminded that the employer mandate under §4980H of the ACA (Affordable Care Act) remains in effect and requires compliance to avoid potential penalties. ALEs who fail to comply with §4980H offer of coverage requirements may face penalties for full-time employees who enroll in subsidized coverage through a public Exchange. Q: Is Your Dealership an ALE? A: Status as an ALE is determined based on data from the previous calendar year, regardless of the employer’s group health plan year. It doesn’t matter whether the employer exceeded 50 FTEs (Full-Time Eligible Employees) in any given month, but whether the employer averaged 50 or greater FTEs over all 12 months of the previous calendar year. Important to note if a Multi Dealership Group: When more than one entity is involved due to common ownership or shared services (e.g., a controlled group or affiliated service group under §414 rules), the entities must aggregate FTEs to determine the average for the previous calendar year. If the combined entities average 50 or greater FTEs (an “aggregated ALE group”), then each entity is an ALE, subject to §4980H offer of coverage requirements and §6056 employer reporting requirements for the following calendar year. Q: What Are the §4980H Offer of Coverage Requirements? A: The offer of coverage requirements for ALEs under §4980H are as follows: • §4980H(a) – ALEs must offer minimum essential coverage (MEC) to at least 95% (or all but five, if greater) of full-time employees and their dependent children each month. An offer of coverage is not required for spouses. • §4980H(b) – ALEs must offer coverage that provides minimum value AND is affordable to all full-time employees each month. There is not a 5% “margin of error” for §4980H(b) requirements like there is under §4980H(a). Q: How Do You Determine Affordability? A: Affordability is generally determined by applying the applicable affordability percentage, which changes yearly, to an individual’s household income. If the employee contribution for the lowest-cost minimum value plan for self-only coverage does not exceed the applicable affordability percentage of the employee’s household income, the coverage is affordable. However, because an employer will not typically know household income, the employer is protected from any potential penalties under §4980H(b) so long as the coverage is affordable under one of three safe harbors. Employers may use any of the affordability safe harbors for any reasonable category of employees, provided the safe harbor applies on a uniform and consistent basis for all employees in a category. The affordability safe harbors are as follows: • Federal poverty level (FPL) safe harbor – Employee contribution for single, minimum value coverage does not exceed the applicable affordability percentage of FPL for a single individual. • Rate of pay safe harbor – Employee contribution for single, minimum value coverage does not exceed the applicable affordability percentage of hourly rate x 130 (or monthly salary). • Form W-2 safe harbor – Employee contribution for single, minimum value coverage does not exceed the applicable affordability percentage of the employee’s Box 1 wages. Ask Alison By Alison McCallum, EPIC Insurance Brokers and Consultants 6
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