Employers with 50+ full-time employees and/or full-time equivalents must offer medical coverage that is "affordable" and provides minimum value to at least 95% of their full-time employees and their children up to age 26 or face penalties.*
Coverage is "affordable" if employee contributions are less than the indexed threshold (9.86% in 2019 and 9.78% for 2020)
- Employee's W-2 wages (reduced by any salary reductions under a 401(k) plan or cafeteria plan)
- Employee’s monthly wages (hourly rate x 130 hours per month),
- Federal Poverty Level for a single individual
A plan must pay 60% of the cost of covered health services to provide "minimum value." The minimum value calculator is available online.
U.S.-issued expatriate plans meet the employer mandate.
Effective July 16, 2014, the employer mandate no longer applies to insured plans issued in the U.S. territories (Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa and the Northern Mariana Islands). A territory may enact a comparable provision under its own law.
* Before January 2016, employers with 50-99 were not required to offer coverage, and employers with 100 or more complied if they offered coverage to at least 70% of their full-time or FTE employees.
This graphic summarizes the coverage requirements and the penalties that apply if any full-time employee purchases coverage on the Marketplace and receives a federal premium subsidy.
Public Exchange Subsidy Notices and Employer Appeal Process
Each year, public Exchanges should send Section 1411 Certification notices to employers that may owe a penalty for not complying with the Employer Mandate. These notices will alert employers if any of their employees received a subsidy through the Exchange. Employers that receive these notices will have 90 days to file an appeal if they feel the eligibility determination was made in error. Employers should become familiar with the appeals process and ensure their health benefits records are complete and accurate.
Read more about the employer notice process from the Centers for Medicare and Medicaid Services.
IRS Notices of Employer Shared Responsibility Payment
Once the IRS has received individual tax returns and large employer reporting returns on a given coverage year, it may determine that an employer is subject to a financial penalty, known as the Employer Shared Responsibility Payment (ESRP), and will send the employer an IRS Letter 226J. The employer has 30 days to respond with documentation and corrected reporting data (if applicable). When the IRS completes a full review of the employer’s response, it will issue a final IRS Notice 220J. This Notice will include the final assessed ESRP, which could indicate no amount is owed.
Read more about employers’ options on the IRS web page, Employer Shared Responsibility Payment Q&As, questions 55-58.
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