Garrett Fenton Comments on Affordability Safe Harbors of ACA in Wolters Kluwer Law & Business
"Strategic Perspectives: Safe harbors shore up employers'' ability to determine affordability"Wolters Kluwer Law and Business
Garrett Fenton commented on affordability safe harbors under the employer shared responsibility provisions of the Affordable Care Act (ACA). The ACA provides that an employer-sponsored plan is affordable for an employee if the employee's required contribution does not exceed 9.5 percent of the applicable taxpayer's household income for the year. "Under the current guidance, the lower 9.5 [percent] figure continues to apply for purposes of the safe harbors. Unlike the maximum required contribution percentage for coverage to be deemed affordable under Code §36B, which is subject to statutory increases for inflation after 2014, the affordability safe harbors that apply for purposes of the employer shared responsibility regulations do not purport to be adjustable for inflation in future years," Fenton said. "The increase in the maximum required contribution percentage, from 9.5 [percent] to 9.56 [percent] of household income, thus does not apply for purposes of the safe harbor rules."
There are three affordability safe harbors for the purposes of assessable payment provisions. "There is no 'one size fits all' affordability safe harbor for 'applicable large employers' of any size," Fenton said. "Each employer will need to weigh the options and determine which approach works best for it, balancing administrative simplicity, the manner in which employees are compensated (e.g., tipped and commission-based employees), and the desire to use a methodology that results in the highest household income 'proxy' amount possible." According the Fenton, of all three safe harbors, the Form W-2 safe harbor is likely the most complex to administer and the federal poverty line safe harbor is the simplest.