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The Wagner Law Group Description 

The Wagner Law Group, A Professional Corporation, is a nationally recognized ERISA & employee benefits, estate planning, employment, labor & human resources practice. 

 

Established in 1996, The Wagner Law Group has 22 attorneys engaged exclusively in employee benefits, estate planning and employment law. Five of our attorneys are AV rated by Martindale-Hubbell as having very high to preeminent legal abilities and ethical standards. The firm is among the largest ERISA boutiques in the country. Our practice is national in scope, with clients in more than 40 states and several foreign countries.

 

 

Contact Info

The Wagner Law Group

 

Integrity | Excellence

  

Massachusetts Office 

Tel: (617) 357-5200 

Fax: (617) 357-5250 

99 Summer Street 

13th Floor

Boston, MA 02110


Florida Office 

Tel: (561) 293-3590
Fax: (561) 293-3591
7121 Fairway Drive
Suite 203
Palm Beach Gardens, FL 33418

   

San Francisco Office

Tel: (415) 625-0002

Fax: (415) 358-8300

315 Montgomery Street

Suite 902

San Francisco, CA 94104

 

www.wagnerlawgroup.com

 

 

January 17, 2013 

 State and Federal Law Alert

 

IRS Issues Proposed Regulations on PPACA's Employer Pay-or-Play Penalties

 

The IRS began 2013 by releasing proposed regulations that offer much needed guidance to employers regarding their potential liability for the "pay-or-play" penalties contained in the Patient Protection and Affordable Care Act ("PPACA"). Beginning in 2014, PPACA subjects large employers (i.e., employers with 50 or more full-time equivalent employees ("FTEs")) to two different pay-or-play penalties if they fail to comply with PPACA's "employer shared responsibility" provisions. The previous Alert explained which employers will be subject to these pay-or-play provisions and this Alert focuses on the penalties imposed for violations of the pay-or-play rules.

 

Pay-or-Play Penalties. The first pay-or-play penalty applies if: (i) an employer fails to offer minimum essential coverage to "substantially all" of its full-time employees; and (ii) a low-income, full-time employee receives a premium tax credit through an Exchange. In those situations, the employer must pay an annual penalty of $2,000 multiplied by: the number of full-time employees, minus 30.

 

The other pay-or-play penalty applies in situations where: (i) an employer offers minimum essential coverage to its full-time employees that is either "unaffordable" or does not provide "minimum value;" and (ii) a low-income, full-time employee receives a premium tax credit through an Exchange. In such situations, the employer must pay an annual penalty of $3,000 for each full-time employee who receives the premium tax credit. However, this penalty is capped at $2,000 multiplied by: the number of full-time employees minus 30.

 

Full-time Employee vs. FTEs. Although the hours of part-time workers are aggregated into FTEs when determining if an employer is a large employer subject to the penalties (see the January 10, 2013 Alert), for purposes of determining penalty amounts, only actual full-time employees are counted. Generally, a full-time employee is an employee who is employed an average of at least 30 hours per week. Hours of service include not only hours when work is performed but also hours for which an employee is paid or entitled to payment, even when no work is performed (i.e., vacation, sick leave, holidays).

 

"Substantially All" Employees. An employer is consider to have offered health care coverage to "substantially all" of its employees if the offer is made to at least 95% of the full-time employees. Therefore, an employer that offers health coverage to 97% of its full-time employees is not subject to the $2,000 penalty. However, that employer is still subject to the $3,000 penalty for each low income full-time employee who receives a premium tax credit through an Exchange, regardless of whether that employee is or is not eligible to participate in the employer's plan.

 

Employees vs. Dependents. In 2014, with certain exceptions, large employers must offer coverage to full-time employees' dependents in order to avoid the penalty. For purposes of the pay-or-play penalty, the term "dependent" means an employee's dependent children up to age 26, but does not include the employee's spouse.

 

Determining if Coverage Provides Minimum Value. In general, an employer's health coverage provides "minimum value" only if it covers at least 60% of the total allowed costs of benefits that are expected to be incurred under the plan. The IRS, DOL and HHS will make a minimum value calculator available to help employers determine whether their coverage provides minimum value. Employers will input certain information about their plan (e.g., deductibles and co-pays) into the calculator and get a determination as to whether their coverage provides minimum value.

 

Affordability Safe Harbors. Coverage is "unaffordable" if the employee's share of the premium is more than 9.5% of his or her annual household income. However, employers generally do not know their employees' household incomes. The proposed regulations provide the following affordability safe harbors that employers may use to determine if their coverage is affordable: 

  • W-2 safe harbor. If the employee's contribution for single coverage under the employer's lowest cost medical option does not exceed 9.5% of the employee's Box 1, W-2 pay for that year, the affordability test is satisfied. 
  • Rate of pay safe harbor.If the employee's contribution for single coverage under the employer's lowest cost medical option does not exceed 9.5% of the employee's monthly wage amount, the affordability test is satisfied.
  • Federal poverty line safe harbor. If the employee's contribution for single coverage under the employer's lowest cost medical option does not exceed 9.5% of the federal poverty line for a single individual, the affordability test is satisfied. 

All large employers should carefully consider the financial impact of the proposed regulations. Even extremely large employers that offer minimum essential coverage should consider the ramifications of the penalty when some of their employees receive premium tax credits through Exchanges. This is because employees may qualify for the premium tax credit with household incomes as high as 400% of the federal poverty line, which, for 2012, was $92,000 for a family of four. Therefore, more employees may receive premium tax credits than would be anticipated by employers. 

 

This Newsletter is protected by copyright. Material appearing herein may be reproduced with appropriate credit.

  

Pursuant to Internal Revenue Service Circular 230, we hereby inform you that any advice set forth herein with respect to US federal tax issues is not intended or written by The Wagner Law Group to be used and cannot be used, by you or any taxpayer, for the purpose of avoiding penalties that may be imposed on you or any other person under the Internal Revenue Code.

 

This Newsletter is provided for information purposes by The Wagner Law Group to clients and others who may be interested in the subject matter, and may not be relied upon as specific legal advice.  This material is not to be construed as legal advice or legal opinions on specific facts. Under the Rules of the Supreme Judicial Court of Massachusetts, this material may be considered advertising.