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IRS Announces ACA Indexing Adjustments for Affordability and Premium Tax Credit Determinations for 2018



Rev. Proc. 2017-36 (May 4, 2017)

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The IRS has announced 2018 indexing adjustments for two key percentages under the Affordable Care Act (ACA). The first percentage, which is the required contribution percentage used to determine whether employer-sponsored health coverage is “affordable” for purposes of employer shared responsibility and had increased from the 9.5% baseline to 9.69% for 2017 (see our Checkpoint article), will decrease to 9.56% for 2018. The second percentage, used to determine the amount individuals eligible for premium tax credits must contribute toward the cost of Exchange coverage, will also see small decreases. The adjusted percentage, ranging from 2.01% to 9.56%, varies across household income bands.

The IRS announcement includes a reminder that the required contribution percentage used to determine whether individuals are exempt from individual shared responsibility penalties also decreased to 8.05% for 2018. (Individuals are exempt if the amount that they would be required to pay for minimum essential coverage exceeds a particular percentage of actual household income for a taxable year.) The percentage was announced in December 2016 in HHS regulations establishing the 2018 benefit and payment parameters (see our Checkpoint article).

EBIA Comment: Adjustments to the affordability percentage will be of interest to applicable large employers and their advisors, since failure to offer affordable, minimum value coverage to full-time employees may result in employer shared responsibility penalties. Notwithstanding the recent publicity surrounding proposals to repeal and replace certain parts of the ACA, penalties associated with employer shared responsibility will remain the law until changed by legislation—which requires approval by both houses of Congress. The indexed affordability percentage applies to all provisions under Code §§ 4980H and 6056 that reference the 9.5% statutory standard, including the three Code § 4980H affordability safe harbors (see our Checkpoint article). The Code § 4980H penalty amounts are also indexed, but the indexed amounts have not yet been released for 2018. For more information, see EBIA’s Health Care Reform manual at Sections XXI.B.4 (“Individuals and Employers Eligible for the Exchange: Individual Eligibility Determinations”), XXVIII.E (“Assessable Payment (Penalty Tax) When Inadequate Coverage Offered to Full-Time Employees and Dependents (the ‘Subsection (b) Penalty’)”), and XXIX.D.1 (“Exemption for No Affordable Coverage”).

Contributing Editors: EBIA Staff.