The Internal Revenue Service has issued Revenue Procedure 2022-34 to implement the 2023 index adjustments for certain Affordable Care Act (“ACA”) contribution percentages used to determine affordability under the law’s 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 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 reinstated 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 (as determined under IRS guidelines) for the tax year. ALEs that fail to provide affordable coverage are liable for a penalty of $3,000 per year (as indexed) for each full-time employee who receives a premium tax credit through an ACA Marketplace.
Revenue Procedure 2022-34. For 2023, the required contribution percentage for ALEs has decreased to 9.12% (down from 9.61% for 2022). This means that if an employee’s share of the premium for employer-provided coverage for 2023 is more than 9.12% of her or his 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.
Revenue Procedure 2022-34 is available at https://www.irs.gov/pub/irs-drop/rp-22-34.pdf.