Smart Benefits: IRS Announces 2020 ACA Affordability Threshold
Rob Calise, GoLocalProv Business/Health Expert
Smart Benefits: IRS Announces 2020 ACA Affordability Threshold
Affordability Threshold
For plan years beginning in 2020, the IRS has announced that coverage will generally be considered affordable if the employee’s required contribution for the lowest cost self-only health plan offered is 9.78% or less of his or her household income for the taxable year. The IRS has created three safe harbors that employers may use in place of the employee’s household income to determine affordability:
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Rate of Pay
Federal Poverty Level
ALEs may be subject to a penalty for (1) failure to offer coverage to all full-time employees and their dependents – the “part a” or “failure to offer” penalty; or (2) offering coverage that is not affordable or does not provide minimum value – the “part b” penalty.
Employer Mandate Penalties
ALEs may be subject to a penalty for (1) failing to offer minimum essential coverage (MEC) to all full-time employees and their dependents – the “part a” or “failure to offer” penalty; or (2) offering coverage that is not affordable or does not provide minimum value – the “part b” penalty.
Calculating the penalty for failure to offer MEC:
In 2020, it’s $2,590 per full-time employee, excluding the first 30 full-time employees
Before the penalty will apply, at least one full-time employee must enroll in exchange coverage and must receive a premium tax subsidy for that coverage
Part-time employees are not included in the penalty calculatio
Calculating the penalty for offering coverage that is unaffordable or does not provide minimum value:
In 2020, it’s $3,890 per full-time employee who receives a premium tax credit for exchange coverage
The total penalty cannot exceed the amount that the employer would have owed if it had been liable for the failure to offer penalty
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