In Revenue Procedure 2021-36, the IRS recently announced an important indexing adjustment related to the Affordable Care Act (ACA). Now is a good time to review whether your organization is an applicable large employer (ALE) under the ACA and, if so, whether the health care coverage you offer employees will still be considered “affordable” next year.
Affordability and minimum value
An employer’s size, for ACA purposes, is determined in any given year by its number of employees in the previous year. Generally, if your organization has 50 or more full-time or full-time equivalent employees on average during the previous year, you’ll be considered an ALE for the current calendar year. A full-time employee is an individual who provides, on average, at least 30 hours of service per week.
Under the ACA, what happens if an ALE doesn’t offer minimum essential coverage that’s affordable and provides minimum value to its full-time employees and their dependents? The employer may be subject to a penalty if at least one of its full-time employees receives a premium tax credit for buying individual coverage through a Health Insurance Marketplace (commonly referred to as an “exchange”).
For plan years beginning in 2022, the required contribution percentage used to determine whether employer-sponsored health coverage is affordable for purposes of the ACA’s employer shared responsibility provision has been adjusted from the 9.5% baseline to 9.61%. (This is a decrease from 9.83% for 2021.)
The existing ACA premium tax credit was expanded by the American Rescue Plan Act (ARPA) for tax years 2021 and 2022. The 2022 percentage of household income that recipients of the tax credit must pay for coverage through a Health Insurance Marketplace ranges from zero to 8.5%. This is the same as it has been for 2021.
The premium tax credit had been limited to taxpayers with household income between 100% and 400% of the federal poverty line who buy insurance through a Health Insurance Marketplace. However, for 2021 and 2022, the ARPA eliminated the upper income limit for eligibility and increased the amount of the premium tax credit by decreasing, in al income bands, the percentage of household income that individuals must contribute for Health Insurance Marketplace coverage.