The Internal Revenue Service has released Revenue Procedure 2017-36 to implement index adjustments in 2018 for certain Affordable Care Act (“ACA”) contribution percentages used for purposes of determining affordability under the employer shared responsibility mandate.
Background. Under the ACA, contribution percentages are used to determine: (i) whether an Applicable Large Employer (“ALE”) is subject to the ACA’s employer shared responsibility penalty for failing to provide affordable coverage that provides minimum value to a full-time employee, (ii) whether an individual is exempt from the ACA’s individual mandate penalty due to lack of access to affordable coverage, and (iii) the amount of an eligible taxpayer’s ACA premium tax credit.
NOTE: ALEs are employers that had 50 or more full-time equivalent employees during the preceding calendar year.
The ACA’s employer shared responsibility rules require ALEs to offer affordable, minimum value health coverage to full-time employees. The ACA provides that an ALE’s coverage is affordable if the employee’s required contribution for self-only coverage does not exceed a certain percentage of the employee’s household income for that tax year. ALEs that fail to provide affordable coverage are liable for a penalty of $3,000 per year per each full-time employee who receives a premium tax credit through an Exchange.
Revenue Procedure 2017-26. For 2018, the required contribution percentage has decreased to 9.56% (from 9.69% in 2017). This means that if an employee’s share of the premium for employer-provided coverage (in 2018) is more than 9.56% of his or her household income, the coverage is not considered affordable for that employee and the ALE may be liable for a penalty if that employee obtains a premium tax credit through an Exchange.
Revenue Procedure 2017-36 is available at: https://www.irs.gov/pub/irs-drop/rp-17-36.pdf