The IRS has issued Notice 2012-58, which provides interim guidance on the Code Sec. 4980H shared responsibility payment for applicable large employers with employees who receive a premium tax credit or applicable payment under the Patient Protection and Affordable Care Act (PPACA). The shared responsibility payment requirement generally applies after 2013. The guidance sets forth some safe harbor methods applicable to seasonal employees and employees who work variable hours that may or may not average 30 hours.
Who is required to make a shared responsibility payment?
Subject to several exceptions, an "applicable large employer" means, with respect to a calendar year, an employer who employed an average of at least 50 full-time employees on business days during the preceding calendar year.
Under the PPACA, an applicable large employer is subject to a shared responsibility payment (an assessable payment) if any full-time employee is certified to receive an applicable premium tax credit or cost-sharing reduction payment and:
- The employer does not offer toits full-time employees and their dependents the opportunity to enroll inminimum essential coverage under an eligible employer-sponsored plan (CodeSec. 4980H(a)); or
- The employer offers its full-timeemployees and their dependents the opportunity to enroll in minimumessential coverage under an eligible employer-sponsored plan that eitheris unaffordable relative to an employee's household income or does notprovide minimum value (that pays at least 60 percent of benefits) ( CodeSec. 4980H(b)).
What is the look-back measurement period?
Employers may use an extended look-back measurement period of up to 12 months to determine whether their new ongoing employees are "non-full-time" employees that will not subject employers to an assessed payment under Code Sec. 4980H. Examples provided in Notice 2012-58 include variable hours employees, such as waiters, or seasonal employees, such as a ski instructor who works for five months. The IRS explained that an employee is a variable hour employee if, based on the facts and circumstances at the date the employee begins providing services to the employer (the start date), it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week.
How long will the IRS rely on this guidance?
At least through the end of 2014, the IRS announced that employers may rely on the guidance outlined in Notice 2012-58 and on the following approaches described in prior Notices:
- Under the safe harbor method forongoing employees, an employer determines each ongoing employee'sfull-time status by looking back at the standard measurement period (adefined time period of not less than three but not more than 12consecutive calendar months, as chosen by the employer).
- If an employee is reasonablyexpected at his or her start date to work full-time, an employer thatsponsors a group health plan that offers coverage to the employee at orbefore the conclusion of the employee's initial three calendar months ofemployment will not be subject to the employer responsibility payment.
- For all employees, an employerwill not be subject to an assessable payment under Code Sec. 4980H(b) foran employee if the coverage offered to that employee was affordable basedon the employee's Form W-2 wages reported in Box 1. Under theaffordability safe harbor, an employee's contribution generally cannot bemore than 9.5 percent of the employee's Form W-2 wages.
If you have any questions concerning how these complex rules for "shared responsibility payments" may relate to your business and what steps might be taken before the rules go into effect, please contact Doeren Mayhew.