16 Jan IRS Offers Some Help with ‘Pay or Play’ Proposal

The IRS kicked off 2013 with a little relief for some employers under the Patient Protection and Affordable Care Act (PPACA).

The proposed guidance, released Dec. 28, 2012, eases some of the penalties for larger employers who fail to provide adequate health care coverage for all their full-time employees. The PPACA “pay or play” penalty — $2,000 per full-time employee for employers with at least 50 workers as of Jan. 1, 2014 — will not apply as long as the employer covers at least 95 percent of their full-time employees and their dependents up to age 26, according to Littler Mendelson PC.

The proposed guidance clears up questions that have lingered since the inception of the law in 2010, according to a report in Business Insurance. As it was originally written, any employee with a large employer who opted to receive a premium subsidy under the PPACA-created health care exchanges instead of taking the employer-sponsored coverage might trigger the penalty for the employer. The 95 percent rule would give employers a little wiggle room in case a handful of employees decided to take the subsidy.

These proposed rules also would provide flexibility in the event that part-time employees who take the premium subsidy occasionally accrue hours that temporarily push them into full-time status, according to the Business Insurance report.

In addition to the 95 percent rule, the IRS handed out a few other surprises for employers, according to the law firm of Kilpatrick Townsend & Stockton LLP. For instance, the guidance would:

• Require coverage of full-time employees and dependents under age 26, but not of spouses.
• Aggregate employers in a controlled group (common ownership) to determine if an employer is subject to the penalty. However, if an employer is subject to the penalty, the calculation of the fine is applied to each employer separately in a controlled group — meaning “one member’s failure will not affect the other members of the group.”

While the “pay or play” penalty doesn’t go into effect until next year, employers need to start tracking their employees’ status now, advises Kevin R. McMurdy, an attorney with Fox Rothschild.

“The release of this information continues to underline the importance of counting employees and measuring their hours to see if they are full- or part-time under the definitions provided in PPACA,” McMurdy wrote in Employee Benefit News. “Employers should start counting now and avoid any last-minute confusion over their status or their obligations. As more guidance is issued, we can fine-tune these measurements, but don’t get caught short at year-end having failed to manage your population.”

The IRS currently is taking public comments on the rules through March 18 and plans to conduct a hearing in April to further explore these proposals.