2024 Health FSA Limit Increased

The IRS has released Revenue Procedure 2023-34 confirming that for plan years beginning on or after January 1, 2024, the health FSA salary reduction contribution limit will increase to $3,200.

The adjustment for 2024 represents a $150 increase to the current $3,050 health FSA salary reduction contribution limit in 2023.

What About the Carryover Limit into 2025?

The indexed carryover limit for plan years starting in calendar year 2024 to a new plan year starting in calendar year 2025 will increase to $640.

• Carryover Limit from a Plan Year Starting in 2023 to a Plan Year Beginning in 2024: $610
• Carryover Limit from a Plan Year Starting in 2024 to a Plan Year Beginning in 2025: $640

Other Notable 2024 Health and Welfare Employee Benefit Amounts

• Dependent Care FSA: The dependent care FSA limit remains fixed (with no inflation adjustment) at $5,000.
• HSA Limits: The IRS released the significantly increased 2024 HSA limits back in May. The individual contribution limit will be $4,150 (up from $3,850) and the family contribution limit will be $8,300 (up from $7,750).
• ACA Employer Mandate Affordability: The 2024 affordability safe harbor percentage decreases dramatically to 8.39% (down from 9.12%). This sets the federal poverty line affordability safe harbor at a $101.93 maximum monthly employee-share of the premium for the lowest-cost plan option at the employee-only tier.
• ACA Pay or Play Penalties: The 2023 annualized employer mandate pay or play penalties will increase to $2,970 (the Section 4980H(a) “A Penalty”) and $4,460 (the Section 4980H(b) “B Penalty”) annualized.
• ACA Reporting: The deadline to furnish 2023 Forms 1095-C to employees will be March 1, 2024. Last year, the IRS finalized regulations making permanent the 30-day extension from the otherwise standard January 31 deadline. Although the 30-day extension typically results in a March 2 deadline, that date is moved up to March 1 in 2024 because it is a leap year.
  Keep in mind that IRS did not extend the good faith enforcement safe harbor from penalties for incorrect or incomplete information on the Forms 1094-C and 1095-C (generally $310 per return in 2024).
  The Form 1094-C and copies of the Forms 1095-C must be filed electronically with the IRS by April 1, 2024 (March 31 is a Sunday). As a result of newly finalized IRS regulations, virtually all employers will need to file electronically. This will generally require engaging with a third-party vendor that can complete the electronic filing.
• PCORI Fee: The IRS recently released the July 2024 PCORI fee for plan years that end on or after October 1, 2023, and before October 1, 2024 (including 2023 calendar plan years) at $3.22 per covered life.

IRS Releases ACA Shared Responsibility Affordability Percentage for 2024

The IRS recently issued Revenue Procedure 2023-29, which significantly decreases the affordability threshold for ACA employer mandate purposes to 8.39% for plan years beginning in 2024. The new 8.39% level marks by far the lowest affordability percentage to date.

The affordability percentages apply for plan years beginning in the listed year. A calendar plan year will therefore have the 8.39% affordability threshold for the plan year beginning January 1, 2024.

The ACA employer mandate rules apply to employers that are “Applicable Large Employers,” or “ALEs.” In general, an employer is an ALE if it (along with any members in its controlled group) employed an average of at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year.

There are two potential ACA employer mandate penalties that can impact ALEs:

a) IRC §4980H(a)—The “A Penalty”

The first is the §4980H(a) penalty—frequently referred to as the “A Penalty” or the “Sledge Hammer Penalty.” This penalty applies where the ALE fails to offer minimum essential coverage to at least 95% of its full-time employees in any given calendar month.

The 2024 A Penalty is $2,970 annualized multiplied by all full-time employees (reduced by the first 30). It is triggered by at least one full-time employee who was not offered minimum essential coverage enrolling in subsidized coverage on the Exchange.

The “A Penalty” liability is focused on whether the employer offered a major medical plan to a sufficient percentage of full-time employees—not whether that offer was affordable (or provided minimum value).

b) IRC §4980H(b)—The “B Penalty”

The second is the §4980H(b) penalty—frequently referred to as the “B Penalty or the “Tack Hammer Penalty.” This penalty applies where the ALE is not subject to the A Penalty (i.e., the ALE offers coverage to at least 95% of full-time employees).

The B Penalty applies for each full-time employee who was:

1. not offered minimum essential coverage,
2. offered unaffordable coverage, or
3. offered coverage that did not provide minimum value.

Only those full-time employees who enroll in subsidized coverage on the Exchange will trigger the B Penalty. Unlike the A Penalty, the B Penalty is not multiplied by all full-time employees.

In other words, an ALE who offers minimum essential coverage to a full-time employee will be subject to the B Penalty if:

1. the coverage does not provide minimum value or is not affordable (more below); and
2. the full-time employee declines the offer of coverage and instead enrolls in subsidized coverage on the Exchange.

The 2024 B Penalty is $4,460 annualized per full-time employee receiving subsidized coverage on the Exchange.

IRS Final Rule Regarding Affordability of Employer Coverage for Family Members

On October 11, 2022, the IRS released a final rule that changes the way health insurance affordability is determined for members of an employee’s family, beginning with Plan Year (PY) 2023 coverage. Beginning in 2023, if a employee has an offer of employer-sponsored coverage that extends to the employee’s family members, the affordability of that offer of coverage for the family members will be based on the family premium amount, not the amount the employee must pay for self-only coverage, when purchasing coverage in the marketplace. 

 

 

To view the final rule, visit: https://www.federalregister.gov/public-inspection/2022-22184/affordability-of-employer-coverage-for-family-members-of-employees

2023 ACA Affordability Percentage Announced

This week the IRS issued Revenue Procedure 2022-34, which significantly decreases the affordability threshold for ACA employer mandate purposes to 9.12% for plan years beginning in 2023. The new 9.12% level marks by far the lowest affordability percentage to date, as well as the first time the threshold has dropped below the initial 9.5% standard set by the ACA.

The affordability percentage decrease is based on the ACA’s index inflation metric, which is the rate of premium growth for the preceding year over the rate of CPI growth for the preceding year. The affordability percentages apply for plan years beginning in the listed year. A calendar plan year will therefore have the 9.12% affordability threshold for the plan year beginning January 1, 2023.

The ACA employer mandate rules apply to employers that are “Applicable Large Employers,” or “ALEs.” In general, an employer is an ALE if it (along with any members in its controlled group) employed an average of at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year.

There are two potential ACA employer mandate penalties that can impact ALEs:

a) IRC §4980H(a)—The “A Penalty”

The first is the §4980H(a) penalty—frequently referred to as the “A Penalty” or the “Sledge Hammer Penalty.” This penalty applies where the ALE fails to offer minimum essential coverage to at least 95% of its full-time employees in any given calendar month.

The 2022 A Penalty is $229.17/month ($2,750 annualized) multiplied by all full-time employees (reduced by the first 30). It is triggered by at least one full-time employee who was not offered minimum essential coverage enrolling in subsidized coverage on the Exchange. Note: The IRS has not yet released the 2023 A Penalty increase.

The “A Penalty” liability is focused on whether the employer offered a major medical plan to a sufficient percentage of full-time employees—not whether that offer was affordable (or provided minimum value).

b) IRC §4980H(b)—The “B Penalty”

The second is the §4980H(b) penalty—frequently referred to as the “B Penalty or the “Tack Hammer Penalty.” This penalty applies where the ALE is not subject to the A Penalty (i.e., the ALE offers coverage to at least 95% of full-time employees).

The B Penalty applies for each full-time employee who was:

1. not offered minimum essential coverage,
2. offered unaffordable coverage, or
3. offered coverage that did not provide minimum value.

Only those full-time employees who enroll in subsidized coverage on the Exchange will trigger the B Penalty. Unlike the A Penalty, the B Penalty is not multiplied by all full-time employees.

In other words, an ALE who offers minimum essential coverage to a full-time employee will be subject to the B Penalty if:

1. the coverage does not provide minimum value or is not affordable (more below); and
2. the full-time employee declines the offer of coverage and instead enrolls in subsidized coverage on the Exchange.

The 2022 B Penalty is $343.33/month ($4,120 annualized) per full-time employee receiving subsidized coverage on the Exchange.  Note: The IRS has not yet released the 2023 B Penalty increase.

Do Employers Now Have to Offer Affordable Family Coverage?

In furtherance of the Biden Administration’s January 28, 2021, Executive Order 14009 and April 5, 2022, Executive Order 14070 to protect and strengthen the ACA, the Treasury Department and IRS published a proposed rule on April 7, 2022, advancing an alternative interpretation of Internal Revenue Code Section 36B.  Employers can breathe a sigh of relief as the proposed changes do not alter the Employer Shared Responsibility Payment (ACA penalty) construct.  Employers can continue to offer affordable employee-only coverage and spousal or dependent coverage that is unaffordable.  However, the potential indirect effects of the proposed regulations on employers are noteworthy.

At its core, the proposed regulation eliminates the current regulatory concept that the cost of coverage for a spouse and dependent children is deemed affordable if the lowest-cost silver plan for employee-only coverage is affordable.  Citing studies addressing the “family glitch” that disqualifies employees from subsidized Marketplace coverage if the employee-only coverage is affordable and finding this inconsistent with the purpose of the ACA of expanding access to affordable care, the Treasury Department and IRS have reinterpreted Section 36B as permitting a Premium Tax Credit to individuals if the only coverage available to them is unaffordable spousal or dependent coverage.

In an attempt to calm employers’ concerns that this proposed rule will affect their cost-sharing schedules, the Preamble to the proposed rule notes:

The proposed regulations would make changes only to the affordability rule for related individuals; they would make no changes to the affordability rule for employees.  As required by statute, employees continue to have an offer of affordable employer coverage if the employee’s required contribution for self-only coverage of the employee does not exceed the required contribution percentage of household income.  Accordingly, under the proposed regulations, a spouse or dependent of an employee may have an offer of employer coverage that is unaffordable even though the employee has an affordable offer of self-only coverage.

The proposed rule also modifies the minimum value regulations to include the entire family and addresses multiple offers of coverage.

Although not directly affecting employer-sponsored plans, employers may experience indirect effects of the changes if the proposed rule is finalized.  For example, in order for the Internal Revenue Service to make Premium Tax Credit determinations involving family coverage, they may require further information reporting from employers.  The IRS Forms 1094 and 1095 might be modified to require separate affordability reporting regarding both employee-only coverage and other coverage offers.

Further, employer-sponsored plans may see an uptick in enrollment if the Premium Tax Credit becomes available to families when employer-sponsored coverage is unaffordable for spouses and dependent children.  The Premium Tax Credit would help offset the high cost of coverage in employer-sponsored plans.

With the protection and strengthening of the Affordable Care Act being a focus of the current Administration, employers should prepare for further changes.

Affordable Percentage Will Shrink for Employer Health Coverage in 2022

Affordability Threshold Set to Rise Slightly in 2021

The 2021 open enrollment season is quickly approaching. This week the IRS released Rev. Proc. 2020-36 which, among other items, set the affordability threshold for employers in 2021. In order to avoid a potential section 4980H(b) penalty, an employer must make sure one of its plans provides minimum value and is offered at an affordable price. 

A plan is considered affordable under the ACA if the employee’s contribution level for self-only coverage does not exceed 9.5 percent of the employee’s household income. This 9.5 percent threshold is indexed for years after 2014. In 2021 the affordability threshold will be 9.83 percent which is up slightly from the 2020 affordability threshold of 9.78 percent.

An employer wishing to use one of the affordability safe harbors will use the 2021 affordability threshold of 9.83 percent when determining if the safe harbor has been satisfied. The first affordability safe harbor an employer may utilize is referred to as the form w-2 safe harbor. Under the form w-2 safe harbor, an employer’s offer will be deemed affordable if the employee’s required contribution for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.83 percent of that employee’s form w-2 wages (box 1 of the form w-2) from the employer for the calendar year.

The second affordability safe harbor is the rate of pay safe harbor. The rate of pay safe harbor can be broken into two tests, one test for hourly employees and another test for salaried employees. For hourly employees an employer’s offer will be deemed affordable if the employee’s required contribution for the month for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.83 percent of the product of the employee’s hourly rate of pay and 130 hours. For salaried employees an employer’s offer will be deemed affordable if the employee’s required contribution for the month for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.83 percent of the employee’s monthly salary.

The final affordability safe harbor is the federal poverty line safe harbor. Under the federal poverty line safe harbor, an employer’s offer will be deemed affordable if the employee’s required contribution for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.83 percent of the monthly Federal Poverty Line (FPL) for a single individual. The annual federal poverty line amount to use for the United States mainland in 2021 is $12,760. Therefore, an employee’s monthly cost for self-only coverage cannot exceed $104.52 in order to satisfy the federal poverty line safe harbor.

Obviously employers are dealing with a lot of issues as the COVID-19 crisis continues to impact almost every employer in the country. However, it is important for employers to remain compliant with the always evolving ACA rules and regulations. When planning for the 2021 plan year, every employer should check to make sure at least one of its plans that provides minimum value meets one of the affordability safe harbors discussed above for each of its full-time employees. It would not be surprising if individuals were more scrupulous with their healthcare choices in 2021 which could leave noncompliant employers exposed to section 4980H(b) penalties. 

ACA Affordability Percentage Goes Down for 2020

On July 22, 2019, the IRS announced that the ACA affordability percentage for the 2020 calendar year will decrease to 9.78%. The current rate for the 2019 calendar year is 9.86%.

As a reminder, under the Affordable Care Act’s employer mandate, an applicable large employer is generally required to offer at least one health plan that provides affordable, minimum value coverage to its full-time employees (and minimum essential coverage to their dependents) or pay a penalty. For this purpose, “affordable” means the premium for self-only coverage cannot be greater than a specified percentage of the employee’s household income. Based on this recent guidance, that percentage will be 9.78% for the 2020 calendar year.

Employers now have the tools to evaluate the affordability of their plans for 2020. Unfortunately, for some employers, a reduction in the affordability percentage will mean that they will have to reduce what employees pay for employee only coverage, if they want their plans to be affordable in 2020.

For example, in 2019 an employer using the hourly rate of pay safe harbor to determine affordability can charge an employee earning $12 per hour up to $153.81 ($12 X 130= 1560 X 9.86%) per month for employee-only coverage. However in 2020, that same employer can only charge an employee earning $12 per hour $152.56 ($12 X 130= 1560 X 9.78%) per month for employee-only coverage, and still use that safe harbor. A reduction in the affordability percentage presents challenges especially for plans with non-calendar year renewals, as those employers that are subject to the ACA employer mandate may need to change their contribution percentage in the middle of their benefit plan year to meet the new affordability percentage. For this reason, we recommend that employers re-evaluate what changes, if any, they should make to their employee contributions to ensure their plans remain affordable under the ACA.

As we have written about previously, employers will sometimes use the Federal Poverty Level (FPL) safe harbor to determine affordability. While we won’t know the 2020 FPL until sometime in early 2020, employers are allowed to use the FPL in effect at least six months before the beginning of their plan year. This means employers can use the 2019 FPL number as a benchmark for determining affordability for 2020 now that they know what the affordability percentage is for 2020.

Affordability Threshold Set to Increase in 2019

Late last week, the IRS released Rev. Proc. 2018-34 which, among other items, set the affordability threshold for employers in 2019. In order to avoid a potential section 4980H(b) penalty (aka Pay or Play penalty), an employer must make sure one of its plans provides minimum value and is offered at an affordable price. An actuary will determine whether the minimum value threshold has been satisfied and this is generally not an issue for employers. However, an employer is in control as to whether the plan it is offering meets the affordability threshold.

A plan is considered affordable under the ACA if the employee’s contribution level for self-only coverage does not exceed 9.5 percent of the employee’s household income. This 9.5 percent threshold is indexed for years after 2014. In 2018 the affordability threshold decreased from 9.69 percent to 9.56 percent. However, similar to every other year, the affordability threshold is scheduled to increase in 2019. In 2019 the affordability threshold will be 9.86 percent. The significant increase compared to 2018 provides an employer who is toeing the line of the affordability threshold an opportunity to increase the price of its health insurance while continuing to provide affordable coverage.

An employer wishing to use one of the affordability safe harbors will use the 2019 affordability threshold of 9.86 percent when determining if the safe harbor has been satisfied. The first affordability safe harbor an employer may utilize is referred to as the form w-2 safe harbor. Under the form w-2 safe harbor, an employer’s offer will be deemed affordable if the employee’s required contribution for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.86 percent of that employee’s form w-2 wages (box 1 of the form w-2) from the employer for the calendar year.

The second affordability safe harbor is the rate of pay safe harbor. The rate of pay safe harbor can be broken into two tests, one test for hourly employees and another test for salaried employees. For hourly employee, an employer’s offer will be deemed affordable if the employee’s required contribution for the month for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.86 percent of the product of the employee’s hourly rate of pay and 130 hours. For salaried employees, an employer’s offer will be deemed affordable if the employee’s required contribution for the month for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.86 percent of the employee’s monthly salary.

The final affordability safe harbor is the federal poverty line safe harbor. Under the federal poverty line safe harbor, an employer’s offer will be deemed affordable if the employee’s required contribution for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.86 percent of the monthly Federal Poverty Line (FPL) for a single individual. The annual federal poverty line amount to use for the United States mainland in 2019 is $12,140. Therefore, an employee’s monthly cost for self-only coverage cannot exceed $99.75 in order to satisfy the federal poverty line safe harbor.

When planning for the 2019 plan year, every employer should check to make sure at least one of its plans that provides minimum value meets one of the affordability safe harbors discussed above for each of its full-time employees. Should you have any questions on determining the affordability of a plan or any other questions related to the Forms 1094-C and 1095-C, please don’t hesitate to contact us.

 

IRS Starts ACA Employer Mandate Enforcement

IRS has begun notifying employers of their potential liability for an ACA employer shared responsibility payment in connection with the 2015 calendar year. It recently released Forms 14764 and 14765, which employers can use to dispute the assessment.

Background

The Affordable Care Act (ACA) imposes employer shared responsibility requirements that are commonly referred to as the “employer mandate.” Beginning in 2015, applicable large employers (ALEs) – generally, employers with at least 50 full-time employees – are required to offer minimum essential coverage to substantially all full-time employees and their dependents, or pay a penalty if at least one full-time employee enrolls in marketplace coverage and receives a premium tax credit. Even if they offer employees coverage, ALEs may still be subject to an employer shared responsibility payment if the coverage they offer to full-time employees does not meet affordability standards or fails to provide minimum value. 

The IRS announced their plans in Fall of 2017 to notify employers of their potential liability for an employer penalty for the 2015 calendar year. It released FAQs explaining that Letter 226J will note the employees by month who received a premium tax credit, and provide the proposed employer penalty. Additionally, the IRS promised to release forms for an employer’s penalty response and the employee premium tax credit (PTC) list respectively. 

Employer Penalty Response & Employee Premium Tax Credit Forms Now Available

IRS subsequently issued Form 14764, the employer penalty Response, and Form 14765, the Employee PTC Listing. Together, these forms are the vehicle for employers to respond to a Letter 226J.

On Form 14764, employers indicate full or partial agreement or disagreement with the proposed employer penalty, as well as the preferred employer penalty payment option. An employer that disagrees with the assessment must include a signed statement explaining the disagreement, including any supporting documentation. This form also allows employers to authorize a representative, such as an attorney, to contact the IRS about the proposed employer penalty.

On Form 14765, the IRS lists the name and last four digits of the social security number of any full-time employee who received a premium tax credit for one or more months during 2015 and where the employer did not qualify for an affordability safe harbor or other relief via Form 1095-C. Each monthly box has a row reflecting any codes entered on line 14 and line 16 of the employee’s Form 1095-C. If a given month is not highlighted, the employee is an assessable full-time employee for that month – resulting in a potential employer assessment for that month.

If information reported on an employee’s Form 1095-C was not accurate or was incomplete, an employer wishing to make changes must use the applicable indicator codes for lines 14 and 16 described in the Form 1094-C and 1095-C instructions. The employer should enter the new codes in the second row of each monthly box by using the indicator codes for lines 14 and 16. The employer can provide additional information about the changes for an employee by checking the “Additional Information Attached” column. As mentioned:

Employers: Carefully Consider 226J Letter Responses
Miscoding can happen for different reasons, including vendor errors and inaccurate data. To minimize risk of additional IRS exposure, employers should carefully consider how best to respond to a 226J letter given circumstances surrounding the disputed assessments. For example, changing the coding on the 1095-C of an employee from full-time to part-time could trigger further review or questions by the IRS on the process for determining who is a full-time employee – and may increase the likelihood of IRS penalties for reporting errors on an employer’s Form 1095-Cs.

If No IRS Notice in 2017, Is an Employer Home Free in Connection with 2015 Employer Penalty?

In its October FAQs, the IRS stated that it “plans to issue Letter 226J informing ALEs of their potential liability for an employer shared responsibility payment, if any, in late 2017.” If the IRS sticks to that timing, all notices should be sent out by the end of this calendar year. However, because the IRS has not indicated that it will inform employers that they have no employer penalty due, it is impossible to say that an employer not receiving a Letter 226J in 2017 is home free for 2015 employer penalties.

In Closing

Employers should review the newly released forms so they are prepared to respond within 30 days of the date on the Letter 226J. They should also ensure processes are in place to make these payments, as necessary. Even employers who are not expecting any assessments will need to prepare to respond to the IRS within the limited timeframe to dispute any incorrect assessments.