Smart Benefits: IRS Announces 2020 ACA Affordability Threshold

Monday, July 29, 2019

Rob Calise, GoLocalWorcester Business/Health Expert

Rob Calise

Under the Affordable Care Act’s (ACA) employer mandate, Applicable Large Employers (ALEs) – generally those who had 50 or more full-time employees, including full-time equivalents, in the prior year – may be subject to a penalty if they do not offer affordable coverage that provides minimum value to full-time employees and their dependents.

Affordability Threshold

For plan years beginning in 2020, the IRS has announced that coverage will generally be considered affordable if the employee’s required contribution for the lowest cost self-only health plan offered is 9.78% or less of his or her household income for the taxable year. The IRS has created three safe harbors that employers may use in place of the employee’s household income to determine affordability:

W-2
Rate of Pay
Federal Poverty Level

ALEs may be subject to a penalty for (1) failure to offer coverage to all full-time employees and their dependents – the “part a” or “failure to offer” penalty; or (2) offering coverage that is not affordable or does not provide minimum value – the “part b” penalty.

Employer Mandate Penalties

ALEs may be subject to a penalty for (1) failing to offer minimum essential coverage (MEC) to all full-time employees and their dependents – the “part a” or “failure to offer” penalty; or (2) offering coverage that is not affordable or does not provide minimum value – the “part b” penalty.

Calculating the penalty for failure to offer MEC:

In 2020, it’s $2,590 per full-time employee, excluding the first 30 full-time employees
Before the penalty will apply, at least one full-time employee must enroll in exchange coverage and must receive a premium tax subsidy for that coverage
Part-time employees are not included in the penalty calculatio

Calculating the penalty for offering coverage that is unaffordable or does not provide minimum value:

In 2020, it’s $3,890 per full-time employee who receives a premium tax credit for exchange coverage
The total penalty cannot exceed the amount that the employer would have owed if it had been liable for the failure to offer penalty

{image_2}Rob Calise is the Managing Director, Employee Benefits of The Hilb Group of New England, where he helps clients control the costs of employee benefits by focusing on consumer-driven strategies and on how to best utilize the tax savings tools the government provides. Rob serves as Chairman of the Board of United Benefit Advisors, and is a board member of the Blue Cross & Blue Shield of RI Broker Advisory Board, United HealthCare of New England Broker Advisory Board and Rhode Island Business Healthcare Advisors Council. He is also a member of the National Association of Health Underwriters (NAHU), American Health Insurance Association (AHIA) and the Employers Council on Flexible Compensation (ECFC), as well as various human resource associations. Rob is a graduate of Bryant University with a BS in Finance