Proposed Regulations Issued Regarding Employer Shared Responsibility Under PPACA

The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing.

By Daniel J. Schwartz, Esq.  

Greensfelder, St. Louis, MO

On December 28, 2012, the IRS, along with the DOL and HHS, released proposed regulations regarding the Employer Shared Responsibility payment under §4980H (as added by the Patient Protection and Affordable Care Act (PPACA)). Section 4980H imposes a tax penalty on large employers (those with at least 50 full-time employees) who do not provide a minimum level of health care coverage to their full-time employees, effective January 1, 2014. The proposed regulations clarify some of the uncertainties of the provision, including the definition of employer and the rules for counting employees.

Although some commenters suggested using the definition of employer in the Fair Labor Standards Act, the regulations propose the common law definition, which is the definition generally applied by PPACA. The preamble to the proposed regulations clarifies that 501(c)(3) and government entities are considered employers, but the IRS will issue further guidance on whether the aggregation rules of §414 apply to these entities.

For the purposes of determining the total number of full-time employees, full-time equivalents will be considered, meaning that two half-time employees would equal one full-time employee.  Full-time is considered 30 hours per week. The proposed regulations also state that a monthly standard will be used rather than by payroll period. For educational organizations that operate on an academic year, employers must consider breaks as paid leave and calculate the hours of service under the general rules.

Some commenters also questioned whether and what type of dependents must be covered. The proposed regulations clarify that only the employees' children under age 26 need to be covered.

For more information, in the Tax Management Portfolios, see Schwartz, 373 T.M., Employee Benefits for Tax-Exempt Organizations, and Cowart, 389 T.M., Medical Plans - COBRA, HIPAA, HRAs, HSAs, and Disability, and in Tax Practice Series, see ¶5920, Health & Disability Plans.

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