Transition Relief Provided for Shared-Responsibility Payment 

    TAX TRENDS 
    by James A. Beavers, J.D., LL.M., CPA, CGMA 
    Published April 01, 2014

    Employment Taxes

    The IRS issued final regulations that provide transition relief from the Sec. 4980H shared-responsibility payment.

    Shared-Responsibility Payment

    Under Sec. 4980H, an applicable large employer (an employer that employed an average of at least 50 full-time employees or full-time-equivalent employees (FTEs) on business days during the preceding calendar year) must make an assessable payment if either:

    • The employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan and any full-time employee is certified to the employer as having received an applicable premium tax credit or cost-sharing reduction (Sec. 4980H(a)); or
    • The employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan, and one or more full-time employees is certified to the employer as having received an applicable premium tax credit or cost-sharing reduction (Sec. 4980H(b)).

    The employer will be treated as offering coverage to its full-time employees (and their dependents) if it offers coverage to all but 5% or, if greater, five of its full-time employees. The penalty for failing to meet the minimum essential coverage requirements is called the “shared responsibility payment.”

    Transition Relief for Large Employers With Fewer Than 100 Employees

    The final regulations provide transition relief under which an employer will not be subject to the shared-responsibility payment under both Secs. 4980H(a) and (b) in 2015 if it:

    • Employs on average at least 50 full-time employees (including FTEs) but fewer than 100 full-time employees (including FTEs) on business days during 2014;
    • Does not reduce the size of its workforce or the overall hours of service of its employees to satisfy the workforce size condition; and
    • Does not eliminate or materially reduce the health coverage, if any, it offered as of Feb. 9, 2014.

    The employer must also certify to the IRS on a prescribed form that it has met the eligibility requirements for the transition relief. For noncalendar-year plans, the transition relief applies to all calendar months of 2016 that fall within the 2015 plan year. However, the relief is not available for an employer that modifies the plan year of its plan after Feb. 9, 2014, to begin on a later calendar date (e.g., changing the start date of the plan year from Jan. 1 to Dec. 1).

    Limited Sec. 4980H(a) Transition Relief

    The final regulations offer two forms of transition relief for the Sec. 4980H(a) shared-responsibility payment.

    Relief for 70% coverage: For each calendar month during 2015 an applicable large employer that offers coverage to at least 70% (or that fails to offer to no more than 30%) of its full-time employees (and, to the extent required, their dependents) will not be subject to a shared-responsibility payment under Sec. 4980H(a). Employers qualifying for this transition relief continue to be subject to a potential assessable payment under Sec. 4980H(b).

    Relief in calculation of the Sec. 4980H(a) payment: In general, the Sec. 4980H(a) shared-responsibility payment is equal to the number of all full-time employees (excluding 30 full-time employees) multiplied by one-twelfth of $2,000 for each calendar month. For purposes of the liability calculation under Sec. 4980H(a), with respect to each calendar month, an applicable large employer’s number of full-time employees is reduced by that employer’s allocable share of 30. Accordingly, an applicable large employer with 50 full-time employees that is subject to an assessable payment under Sec. 4980H(a) may be subject to an assessable payment based on 20 employees (that is, 50 minus 30) times one-twelfth of $2,000 for each calendar month.

    For 2015, under the regulations, if an applicable large employer with 100 or more full-time employees (including FTEs) on business days during 2014 is subject to an assessable payment under Sec. 4980H(a), the assessable payment under Sec. 4980H(a) with respect to the transition relief period will be calculated by reducing the employer’s number of full-time employees by 80 rather than 30. The aggregate amount of assessable payment determined under Sec. 4980H(b) for an applicable large employer also may not exceed the potential assessable payment under Sec. 4980H(a) calculated in this manner.

    Noncalendar-year plans: For noncalendar-year plans, both of these forms of relief apply to all calendar months of 2015 plus any calendar months of 2016 that fall within the employer’s 2015 plan year. However, the transition relief is available for an employer only if it did not modify the plan year of its plan after Feb. 9, 2014, to begin on a later calendar date.

    Reflections

    This transition relief represents yet another case of the Obama administration unilaterally changing the terms of its signature health care reform legislation to delay its full implementation. Other instances include a prior postponement of the shared-responsibility payment from 2014 to 2015, delays in the reporting requirements under Secs. 6055 and 6056 from 2014 to 2015 (Notice 2013-45), and an even earlier deferral of the requirement that employers report the cost of employer-sponsored coverage on Forms W-2, Wage and Tax Statement, from 2011 to 2012 (Notice 2010-69).

    While questions have been raised about the constitutionality of these regulatory changes, since they in many instances appear to be at odds with plain statutory language (see, e.g., McConnell, “Obama Suspends the Law,” Wall Street Journal (July 8, 2013)), it is hard to see who would sue to enforce the statutory terms, since the changes are taxpayer-friendly, or indeed who would have standing to sue, since that requires a showing of injury or adverse effect.

    T.D. 9655




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