IRS issues final regulations for the employer mandate

On Feb. 10, 2014, the Internal Revenue Service issued final regulations interpreting Internal Revenue Code section 4980H, requiring “shared responsibility for employers regarding healthcare,” or more informally, the employer mandate or the pay-or-play rules.

Section 4980H only applies to “large employers” which are those that averaged 50 full-time employees on business days during the preceding year. For the purposes of determining whether an employer is a large employer, “full-time equivalent” employees as well as full-time employees are taken into account. Notice 2013-45, which the IRS issued last July, provided transition relief by postponing penalty assessments under section 4980H and suspending reporting requirements for large employers for 2014. The newly issued guidance also offers transition relief by deferring to 2016 application of the employer mandate to certain eligible employers.

Application

The pay-or-play rules will apply only to employers with 100 or more full-time employees for 2015:

  • Employers in the 50 to 100 range will need to certify, on a form yet to be created, eligibility for this transition relief
  • In order to qualify for this transitional relief:
    • Between Feb. 9 and Dec. 31, 2014, an employer claiming the relief must not reduce its workforce to qualify for transition relief
    • Between Feb. 9 and Dec. 31, 2014, an employer claiming the relief must not eliminate or materially reduce health coverage offered as of Feb. 9, 2014
    • To determine whether there are at least 50 full-time employees, but fewer than 100 full-time employees on business days in 2014, the requisite rules for large employers must be used to calculate the number of full-time employees, including full-time equivalent employees

For 2016 and beyond, the pay-or-play rules will apply to employers with 50 or more full-time employees.

Coverage requirements

  • To avoid a penalty in 2015, employers who are subject to the employer mandate for that year must offer coverage to 70 percent (reduced from 95 percent) of their full-time employees and their dependents (not including spouses).
  • For 2016 and beyond, employers who are subject to the employer mandate for that year must offer coverage to 95 percent (as originally required) of their full-time employees and their dependents.

Employers with non-calendar year plans are subject to the employer mandate based on the start of their 2015 plan year rather than on Jan. 1, 2015. The IRS is evaluating whether this relief will extend to employers who first become subject to the employer mandate in 2016.

Certain transition relief contained in the proposed regulations was also extended, including:

  • the ability to use a short timeframe of at least six months in order to determine whether an employer is large enough to be subject to the employer mandate
  • a delay in the requirement to provide coverage to dependent children to 2016 (as long as the employer is taking steps to arrange for such coverage to begin in 2016)
  • permitting the use of a short measurement period in 2014 to prepare for 2015

Action steps

Following the issuance of these final regulations, medium-sized employers should determine, as soon as possible, whether they employ on average at least 50 but fewer than 100 full-time employees (including full-time equivalent employees) on business days during 2014. This will determine whether the transitional guidance exempting employers in the 50 to 99 full-time employee range from the pay-or-play rules in 2015 will apply.

For more information on this topic, or to learn how Baker Tilly tax specialists can help, contact our team.


The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely.  The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.