Human Resources
IRS Proposes Rules on Employer Shared Responsibility Payment

IRS Proposes Rules on Employer Shared Responsibility Payment


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The Department of the Treasury and the Internal Revenue Service (IRS) issued proposed rules December 28, 2012 on the employer shared responsibility provisions under the Patient Protection and Affordable Care Act (Affordable Care Act) that may be assessed on applicable large employers. These proposed rules outline what is arguably the most significant change under health care reform for employers—a penalty tax that may be assessed on employers beginning in 2014.

This penalty is referred to as the “assessable payment” and the amount of the penalty depends on whether the employer: 1) fails to “offer” coverage to its full-time employees (and their dependents); or 2) “offers” coverage but that coverage is unaffordable or does not provide minimum value. A large employer could be subject to an assessable payment in one of two situations:

  • “Failure to Offer” Penalty—If a large employer fails to offer its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan and any full-time employee is certified to the employer as having received a premium tax credit or cost-sharing reduction, then the employer will be subject to a monthly penalty equal to 1/12 of $2,000 times the total number of full-time employees minus the first 30 full-time employees.
  • Targeted Penalty—If a large employer offers its full-time employees (and their dependents) the opportunity to enroll in MEC under an eligible employer-sponsored plan and one or more full-time employee(s) is certified to the employer as having received an applicable premium tax credit or cost-sharing reduction because the employer coverage is either unaffordable or does not provide minimum value, then the employer will be subject to a monthly penalty equal to 1/12 of $3,000 times the number of full-time employees that receive the tax credit or cost-sharing reduction. This penalty may not exceed the amount of the “Failure to Offer” Penalty above.

The Aon Hewitt bulletin below provides an overview of the proposed rules for determining: whether an employer is an “applicable large employer”; whether an employer is liable for any assessable payments under the two scenarios described above; which employees are full-time employees; and the administration and assessment of such payments.

Download IRS Proposes Rules on Employer Shared Responsibility Payment