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Indexing Adjustments for 2021 Affordability and Premium Tax Credit Determinations Announced

EBIA  

EBIA  

Rev. Proc. 2020-36 (July 21, 2020)

Available at https://www.irs.gov/pub/irs-drop/rp-20-36.pdf

The IRS has announced 2021 indexing adjustments for some crucial percentages under the Affordable Care Act (ACA). The required contribution percentage used to determine whether employer-sponsored health coverage is “affordable” for purposes of employer shared responsibility under Code § 4980H has increased from the 9.5% baseline to 9.83% for 2021. (This is an increase from 9.78% for 2020; see our Checkpoint article.) Similarly, the percentages used to determine the amount of household income that individuals eligible for premium tax credits must contribute toward the cost of Exchange coverage have increased from both the baseline and the 2020 percentages. The percentages vary across household income bands; for 2021, the adjusted percentages range from 2.07% to 9.83%.

EBIA Comment: Failure to offer affordable, minimum value coverage to full-time employees may result in employer shared responsibility penalties, so the adjustments to the affordability percentage will be of interest to applicable large employers and their advisors. Unlike many indexed amounts, these adjustments require consideration of two independent variables: the growth rate of health insurance premiums relative to growth in the consumer price index. Therefore, the percentages do not necessarily increase every year, and applicable large employers need to wait for the IRS announcement to confirm each year’s percentage. Relatedly, the Code § 4980H penalty amounts are also indexed, but the indexed amounts have not yet been released for 2021. For more information, see EBIA’s Health Care Reform manual at Sections XXI.B.4 (“Exchange Eligibility Determinations”), XXI.G (“Premium Tax Credits”) and XXVIII.E (“Assessable Payment (Penalty Tax) When Inadequate Coverage Offered to Full-Time Employees and Dependents (the ‘Subsection (b) Penalty’)”).

Contributing Editors: EBIA Staff.

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