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Benefits

IRS Announces Indexing Adjustments for 2020 Affordability and Premium Tax Credit Determinations

Rev. Proc. 2019-29 (July 22, 2019)

Available at https://www.irs.gov/pub/irs-drop/rp-19-29.pdf

The IRS has announced 2020 indexing adjustments for two key percentages under the Affordable Care Act (ACA). The first is the required contribution percentage used to determine whether employer-sponsored health coverage is “affordable” for purposes of employer shared responsibility under Code § 4980H, which has increased from the 9.5% baseline to 9.78% for 2020. (This is lower than the indexed threshold of 9.86% for 2019; see our Checkpoint article.) The second, 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, similarly have increased from the baseline but are lower than the 2019 percentages. The percentages vary across household income bands; for 2020 the adjusted percentages range from 2.06% to 9.78%. The 2020 percentages reflect a new method for determining the annual adjustment, as set forth in the 2020 Notice of 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. The Code § 4980H penalty amounts are also indexed, but the indexed amounts have not yet been released for 2020. 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”) 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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