Health Insights Bulletin - Pay or Play Penalty

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Health Insights Bulletin

Pay or Play Penalty Common Ownership Aggregation Rules Provided by InSource The Affordable Care Act (ACA) imposes a penalty on applicable large employers that do not offer minimum essential coverage to substantially all full-time employees and their dependents. Applicable large employers that offer minimum essential coverage may still be liable for a penalty if the coverage is unaffordable or does not provide minimum value. The ACA’s employer penalty is often referred to as a “pay or play” penalty or an employer shared responsibility payment. The employer mandate provisions were set to take effect on Jan. 1, 2014. However, on July 2, 2013, the Treasury announced the delay of the employer mandate penalties and related reporting requirements for one year, until 2015. Therefore, these payments will not apply for 2014. On July 9, 2013, the IRS issued Notice 2013-45 to provide more formal guidance on the delay. No other provisions of the ACA are affected by the delay. On Feb. 12, 2014, the IRS published long-awaited final regulations on the ACA’s employer shared responsibility rules. These regulations finalize provisions in proposed regulations released by the IRS on Jan. 2, 2013. Under the final regulations, applicable large employers that have fewer than 100 full-time employees generally will have an additional year, until 2016, to comply with the pay or play rules. Applicable large employers with 100 or more full-time employees must comply with the pay or play rules starting in 2015.

Overview The final regulations address how the ACA’s pay or play rules apply to companies that are treated as a single employer under Internal Revenue Code (Code) sections 414(b), (c) or (m) because they form a controlled group of businesses or an affiliated service group. The final regulations: • • • •

Apply aggregation rules to determine if a company is an applicable large employer subject to the pay or play rules; Apply aggregation rules to determine if an applicable large employer is eligible for the 2015 transition relief for medium-sized employers (that is, employers with 50-99 employees); Apply aggregation rules for determining an employee’s status as a full-time employee; and Do not apply aggregation rules to calculate a company’s liability for a shared responsibility payment.

Applicable Large Employer Status Only companies that meet the applicable large employer threshold are subject to the ACA’s pay or play rules. An employer must employ on average at least 50 full-time employees, including full-time equivalents (FTEs), on business days during the preceding calendar year to qualify as an applicable large employer. To determine if a company is an applicable large employer, aggregation rules apply for companies that are related or commonly owned. Under these rules, all employees of a controlled group of businesses or an affiliated service group are taken into account to determine if an employer is subject to the pay or play rules. If the combined total meets the large employer threshold, each separate member of the group is subject to the pay or play rules, even those companies that on their own do not have enough employees to meet the threshold.

Example For all of 2014, Corporation Z owns 100 percent of all classes of stock of Corporation Y and Corporation X. Corporation Z has no employees at any time in 2014. For every calendar month in 2014, Corporation Y has 30 full-time employees and Corporation X has 80 PayerFusion Holdings, LLC

payerfusion.com

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