IRS information letter clarifies employer shared responsibility penalties under the ACA

IRS information letter clarifies employer shared responsibility penalties under the ACA
Posted by Jerry Karlin and Jamie Gross on November 01, 2016.

A recent IRS information letter (2016-0030) reiterates an important point about how the ACA’s employer shared responsibility rules work. In particular, whether an employee is “full-time” under the ACA is determined based on actual hours worked, and not on the number of hours an employee is scheduled to work.

At issue in the information letter is an employer that has a policy restricting part-time and seasonal workers to no more than 29 hours per week. An employee who is subject to this policy, and who also is enrolled in Medicare, wrote to IRS asking if the employer could be subject to Employer Shared Responsibility penalties with respect to any employees covered by this policy if they actually work 30 or more hours per week.

For purposes of the IRC § 4980H(a) penalty—i.e., $2,000 times the total number of full-time employees—the information letter noted that employees actually working 30 or more hours per week would count as “full-time” both for purposes of determining if the employer offered minimum essential coverage to 95 percent of full-time employees, as well as for purposes of calculating the penalty amount (if any). This is true even with respect to full-time employees who are enrolled in Medicare.

Similarly, the information letter notes an employee who actually works at least 30 hours per week may expose the employer to the IRC § 4980H(b) penalty—i.e., $3,000 for each full-time employee who purchases coverage from an ACA exchange and qualifies for a premium tax credit. Significantly, anyone enrolled in Medicare cannot qualify for a premium tax credit. As such, the employer could not be subject to the 4980H(b) penalty with respect to the employee who requested this information from the IRS, even if s/he worked 30 or more hours per week. But this penalty could apply with respect to other employees covered by this “no more than 29 hours per week” policy.

It is also worth noting that several lawsuits have been filed challenging employer policies of this type under ERISA § 510. Employers considering implementing these types of policies should be aware of this additional risk as these cases make their way through the courts.


Jerry Karlin is the co-leader of Deloitte Tax LLP’s Global Employer Services Health Care Reform team and the Global Employer Services leader of the Kansas City office.
Jamie Gross is a managing director in Deloitte Tax LLP’s Global Employer Services practice.

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