Resources

Thomson Reuters Tax & Accounting News

Featuring content from Checkpoint

Back to Thomson Reuters Tax & Accounting News

Subscribe below to the Checkpoint Daily Newsstand Email Newsletter

Info letter explains potential employer mandate penalty where employee works beyond 29 hours

Information Letter 2016-0030

In an Information Letter, IRS has addressed whether an employer, that has developed a new policy restricting part-time and seasonal employees from working more than 29 hours in any week, could face potential liability under Code Sec. 4980H (the employer shared responsibility or employer mandate penalty) if an employee in this category works more than 29 hours of service in a week.

Background. Code Sec. 4980H, which was added by the Affordable Care Act (ACA), provides that an applicable large employer (ALE) is required to pay an assessable payment if it doesn’t offer health coverage to its full-time employees and at least one full-time employee purchases coverage through the Marketplace and receives the premium tax credit.

An employee is a “full-time employee” for this purpose if the employee averages at least 30 hours of service per week during a given month.

An ALE for a calendar year is an employer that employed an average of at least 50 full-time employees (see below) on business days during the preceding calendar year.

In determining whether an employer is an ALE, “full-time equivalent employees” (FTEs) are also taken into account. In doing so, the overall hours worked by part-time employees during a month are added up, and the total is divided by 120 (i.e., four weeks multiplied by 30 hours per week) and added to the number of full-time employees for purposes of determining ALE status. However, the actual penalty is applicable solely to the health coverage status of full-time workers, not FTEs.

Code Sec. 4980H provides for two alternative types of assessable payment. An employer could potentially owe one (but not both) of these payments in any given calendar month, if the conditions described below are satisfied:

  • Code Sec. 4980H(a) may apply if the employer fails to offer minimum essential health coverage to at least 95% of its full-time employees and one of its full-time employees receives the premium tax credit for coverage purchased through the Marketplace. If this type of assessable payment is triggered, the annual amount of the payment is $2,000 (adjusted annually; $2,160 for 2016) multiplied by the total number of all the employer’s full-time employees (excluding the first 30).
  • Code Sec. 4980H(b) may apply if the employer does offer minimum essential health coverage that is affordable and provides minimum value to at least 95% of its full-time employees, but one or more full-time employees purchases coverage through the Marketplace and receives the premium tax credit. If this type of assessable payment is triggered, the annual amount of the payment is $3,000 (adjusted annually; $3,240 for 2016) multiplied by the total number of the employer’s full-time employees who receive the premium tax credit. An overall limit applies under which the aggregate amount of tax for all employees of an ALE for any month cannot exceed the product of (a) the applicable payment amount under Code Sec. 4980H(a); and (b) the number of individuals employed by the ALE during any month (reduced by reduced by 30).

Facts. An employer is subject to Code Sec. 4980H because it employed an average of 50 or more full-time employees in the preceding calendar year. The employer adopts a new policy restricting part-time and seasonal employees from working more than 29 hours of service in any week. However, some of the employer’s part-time and seasonal employees work more than 29 hours of service in a week. Some of these employees are covered by Medicare or another source of coverage.

IRS answers. In the Information Letter, IRS reasoned that the amount of the employer’s potential liability under Code Sec. 4980H(a) is based on the number of employees who average 30 or more hours of service per week in a given month. Accordingly, an employee who works an average of 30 or more hours of service per week during any given month could potentially trigger (or increase the amount of) employer liability for an assessable payment under Code Sec. 4980H(a) for that month. IRS noted that all full-time employees are counted for purposes of determining the amount of the assessable payment under Code Sec. 4980H(a), whether or not the employee is covered by Medicare or another source of coverage.

Further, IRS concluded that, for purposes of Code Sec. 4980H(b), an employee could potentially average 30 or more hours of service for a month and still not trigger (or increase the amount of) employer liability, if the employee doesn’t purchase coverage on the Marketplace and receive the premium tax credit. An employee who is covered by Medicare is ineligible to receive the premium tax credit, and so generally would not lead to any employer liability under Code Sec. 4980H(b). However, IRS noted that, as indicated above, a full-time employee who is eligible for Medicare could potentially trigger or increase the amount of an employer’s liability for an assessable payment under Code Sec. 4980H(a).

References: For the excise tax imposed on large employers not offering affordable health insurance coverage, see FTC 2d/FIN ¶  H-1183  et seq.; United States Tax Reporter ¶  49,80H4; TG ¶  7318.

Tagged with →