IRS adjusts affordability percentage under Employer Mandate

Tony Wilson NUVISION Financial Corp.

Tony Wilson
NUVISION Financial Corp.

The definition of “affordable” in terms of employer provided healthcare has shifted slightly, according to a recent announcement from the IRS regarding the Affordable Care Act.

The IRS recently announced the affordability percentage under the ACA’s Employer Mandate will increase to 9.69 percent for 2017. In other words, an applicable large employer’s health coverage will be considered “affordable” if the employee’s required contribution to the plan does not exceed 9.69 percent of the employee’s household income for the year, up from 9.56 percent in 2016.

As we move into annual enrollment this fall we will use that percentage in our calculations for your eligible employees for the 2017 plan year.

This early notice is welcome news considering the IRS’s propensity for last minute announcements.

For example, the ACA’s affordability percentage under the Employer Mandate initially was set at 9.5 percent. In mid-December 2015 the IRS issued a notice that stated it intended to amend the regulations under the ACA to reflect that the applicable percentage in the affordability safe harbors should be adjusted to 9.56 percent for plan years beginning in 2015 and 9.66 percent for plan years beginning in 2016.

This announcement was made as the 2015 calendar year was coming to a close and after the annual enrollment period for the 2016 plan year had ended. Because of the timing of the announcement coupled with the fact annual enrollment had closed and all information already had been communicated to eligible employees at 9.5 percent, my recommendation was that clients move forward into 2016 using 9.5 percent as the safe harbor affordability standard.

To add some perspective, an employee earning $8 an hour and averaging 30 hours per week would contribute an additional $0.69 per pay period (assuming 26 pay periods) at 9.66 percent vs. 9.5 percentaca_logo

At least one payroll company’s clients utilized recently transitioned clients to the 9.66 percent for 2016. We recommend that clients use the 9.5 percent affordability safe harbor for 2016 since that is what was communicated to eligible employees during annual enrollment prior to the IRS’s announcement. Changing the safe harbor during the plan year could open several doors that would expose clients from a compliance perspective and possibly a legal perspective. We do not want any of our clients exposed in this manner.

Confirm with your payroll company customer service representative (CSR) what affordability percentage the payroll company is using for your company for 2016. If your payroll company moved you to the 9.66 percent for 2016, we recommend that you instruct them to move you back to the 9.5 percent for 2016 and refund any additional monies deducted from employees at the 9.66 percent level.

Sources: Tony L. Wilson, principal of NUVISION Financial Corporation; Society for Human Resource Management.