Starting January 1, 2019 affordability percentages will increase according to the Internal Revenue Service's Revenue Procedure notice. Employer-sponsored group coverages will be required to meet the new percentages in order to be considered affordable as follows:
Employer Shared Responsibility – 9.86%
Premium Tax Credit Eligibility – 9.86%
No longer in effect after 2018 was the third, the Individual Mandate Exemption at 8.3% as a result of Tax Cuts and Jobs Act. *see previous BLOG post for details.
Adjustments Over Time
Employer Shared Responsibility and Premium Tax Credit Availability
2014 - 9.5%
2015 - 9.56%
2016 - 9.66%
2017 - 9.69%
2018 - 9.56% (only reduction from the prior year)
2019 - 9.86%
Implications For Large Employers
For 2019 this means that employers will be able to charge employees a slightly higher premium contribution than the previous year and meet the "affordability" test. The ACA has many moving parts and should not be overlooked by employers preparing for 2019. Employer have three safe harbor options to calculate affordability:
The employee's W-2, as reported in Box 1
The employee's rate of pay. That is the hourly rate x 130 hours
The individual Federal Poverty Level (FPL). Keep in mind that the FPL isn't generally announced until January so employers can us the FPL in effect six month prior to the beginning of the plan year. The FPL for 2018 is $12,140 for all main land states. Hawaii and Alaska have different poverty guidelines.
How Do The Safe Harbors WorK?
Below are examples of the Safe Harbors in application, should they be elected as the option to calculate the employee's Maximum Monthly Contribution. These test are for Employee-Only coverage on the lowest cost available plan option. This means the employer should not charge more than the maximum monthly contribution in the below options for those employees that elect Employee-Only coverage in the lowest cost available plan option. Employers can elect to have the employee pay the cost difference for an employee adding a spouse or child(ren) to their coverage as well as the difference between the lowest cost available plan option versus other more expensive plan options offered.
W-2
Assuming the employee makes minimum wage and using Michigan's Minimum Wage increase for 2019 at $9.25 per hour, the Maximum Monthly Contribution is as follows: ($9.25 x 40 hours per week x 52 weeks a year / 12 months x 9.86%) = $158.09 per month.
Rate of Pay
Assuming the employee makes minimum wage and using Michigan's Minimum Wage increase for 2019 at $9.25 per hour, the Maximum Monthly Contribution is as follows: ($9.25 x 130 hours x 9.86%) = $118.57 per month.
Federal Poverty Level
Using last year's FPL at $12,140 and the 2019 announced Affordability Percentage (9.86%) the Maximum Monthly Contribution is a follows: ($12,140 x 9.86% / 12 months) = $99.75 per month.
Further questions? Contact us at info@ajmassoc.com or at (248) 778-6070. AJM Associates will keep you posted in 2019 once the new Federal Poverty Guideline for the year has been announced.
The information herein is intended to be educational only and is based on information that is generally available. AJM Associates makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.
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