Applicable large employers (50 or more FTEs) and employers offering self-funded group medical plans are in the midst of finalizing reporting via Forms 1094 and 1095 for the 2022 calendar year. The reporting is due to the IRS in late February or March depending on whether the employer is submitting by mail or electronically, and Form 1095 copies must be provided to individuals by March 2nd. There are no significant changes to the reporting requirements this year, but the IRS has confirmed that there is no longer reporting penalty relief for good faith efforts. In other words, employers need to take more responsibility for ensuring reporting is as complete and accurate as possible, and they may need your help to do so. We plan to release a series of FAQs over the next several weeks that you can use to refresh your employer reporting understanding, and of course pass along to your clients when appropriate.
Affordability Safe Harbors
An employer is unlikely to know the employee’s household income, so the IRS provided three employer affordability safe harbors. When setting employer contribution rates, employers have the option to use one of three affordability safe harbors to provide more predictability when determining whether the coverage will be considered affordable. So long as minimum value coverage is affordable under one of the three recognized safe harbors, the employer will be considered in compliance for purposes of avoiding a potential penalty under §4980H(b). Note that the use of an affordability safe harbor does not change an individual’s possible eligibility for subsidies toward Marketplace coverage, which is tied to household income). Employers may use any of the three affordability safe harbors for any reasonable category of employees, provided the same safe harbor is used on a uniform and consistent basis for all employees in a category. The regulations provide reasonable categories for this purpose generally include specified job categories, nature of compensation (hourly or salary), geographic location, and similar bona fide business criteria. The following are the three available affordability safe harbors:
- FPL - Employee contribution does not exceed 9.12% (in 2023) of FPL for a single individual.
- Rate of Pay - Employee contribution does not exceed 9.12% (in 2023) of hourly rate x 130 (or monthly salary).
- Form W-2 - Employee contribution does not exceed 9.12% (in 2023) of 2022 Box 1 wages.
TIP: When determining which affordability safe harbor to use, employers should first consider the FPL safe harbor because it is the simplest and guarantees affordability for all employees. If the monthly employee contribution for single coverage does not meet the FPL safe harbor, then the employer should consider the rate of pay or Form W-2 safe harbor.
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