On May 21, 2018, the Internal Revenue Service (IRS) issued Revenue Procedure 2018-34 to index the contribution percentages in 2019 for purposes of determining affordability of an employer’s plan under the Affordable Care Act (ACA). For plan years beginning in 2019, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed:
9.86 percent of the employee’s household income for the year, for purposes of both the pay or play rules and premium tax credit eligibility; and
8.3 percent of the employee’s household income for the year, for purposes of an individual mandate exemption (adjusted under separate guidance).
These updated affordability percentages are effective for taxable years and plan years beginning Jan. 1, 2019. This is a significant increase from the affordability contribution percentages for 2018. As a result, some employers may have additional flexibility with respect to their employee contributions for 2019 to meet the adjusted percentage.
Overview of the Affordability Requirement
Under the ACA, the affordability of an employer’s plan may be assessed in the following three contexts:
The employer shared responsibility penalty for applicable large employers (also known as the pay or play rules oremployer mandate);
An exemption from the individual mandate tax penalty for individuals who fail to obtain health coverage; and
The premium tax credit for low-income individuals to purchase health coverage through an Exchange.
Although all of these provisions involve an affordability determination, the test for determining a plan’s affordability varies for each provision.
The IRS previously adjusted the affordability contribution percentage for 2015 in Rev. Proc. 14-37, for 2016 in Rev. Proc. 14-62, for 2017 in Rev. Proc. 16-24, and for 2018 in Rev. Proc. 17-36. The adjusted affordability contribution percentage for purposes of the individual mandate exemption is separately announced in the Notice of Benefit and Payment Parameters final rule for each year.
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