The Internal Revenue Service has issued Revenue Procedure 2018-34 to implement index adjustments for 2019 for certain Affordable Care Act (“ACA”) contribution percentages used to determine 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 failure to provide full-time employees with affordable coverage that has “minimum value; (ii) whether an individual is exempt from the ACA’s individual mandate penalty (if it is reimposed by Congress) 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 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 for full-time employees who receive a premium tax credit through an ACA Marketplace.
Revenue Procedure 2018-34. For 2019, the required contribution percentage has increased to 9.86% (up from 9.56% in 2018). This means that if an employee’s share of the premium for employer-provided coverage in 2019 is more than 9.86% 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 a Marketplace.