Treasury Provides Significant Transition Rules for Implementing Employer Mandate

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By Lydia Beyoud  

Feb. 10 --New regulations under the Affordable Care Act will provide an additional year for employers with 50 to 99 full-time workers to comply with shared employer responsibility provisions under tax code Section 4980H before they must pay fees for failing to offer affordable health care, the Internal Revenue Service said in final regulations published in the Feb. 12 Federal Register (79 Fed. Reg. 8,543).

Beginning Jan. 1, 2015, only employers with more than 100 full-time equivalent employees must comply with the final regulations (T.D. 9655). The regulations will apply to midsize businesses beginning Jan. 1, 2016, although they will still have reporting requirements in 2015, according to the rules. A crucial condition for receiving the transition relief is that employers must certify that they haven't laid off employees in order to come under the 100-employee threshold.

In July 2013, the Obama administration delayed several key provisions of the ACA for one year, pushing back the Jan. 1, 2014, effective date of proposed rules (REG-138006-12) under Section 4980H on mandatory reporting requirements for employers and health insurers, as well as related employer shared responsibility penalties under Section 6055 and 6056 (31 HRR 707, 7/8/13).

The employer shared responsibility regulations generally provide that applicable large employers with more than 50 full-time-equivalent employees may face penalties if they don't offer full-time employees and their dependents affordable, minimum value health-care coverage, and if at least one of their employees receives a premium tax credit or reduced-cost health insurance through a state exchange or federally administered exchange.

The final rules apply to about 4 percent of employers in the U.S. Employers with between 50 and 99 full-time employees and those with more than 100 employees are about equally divided into 2 percent each of the total number of U.S. employers, Treasury said in a statement issued with the rules.

“The overwhelming majority of these companies with 100 or more employees already offer quality coverage,” Treasury said. The final rules phase in the percentage of full-time workers that employers need to offer coverage to from 70 percent in 2015 to 95 percent in 2016 and beyond. Employers in this category that do not meet these standards will make an employer responsibility payment for 2015, Treasury said.

Stakeholder Concerns Addressed

The final regulations respond to many of the concerns and comments raised by stakeholders, business groups and members of Congress, a senior Treasury official said during a Feb. 10 press conference call held prior to the rules' release. The final rules provide that hours of service by “bona fide volunteer” firefighters and emergency responders don't include hours worked.

The administration also provided a bright line test for adjunct faculty to be included in an employer's FTE calculation. Adjunct faculty will receive a two-and-one-quarter-hour credit for each hour of class time. Thus, a faculty member teaching 15 credits will be considered an FTE employee with more than 30 work hours per week, while those teaching a 12 credit load will generally be considered part-time employees, the Treasury official said. The regulations are solely meant to be a safe harbor and not an exclusive rule, the official said. The agency recognizes that a great deal of variation exists within the education community, the official said.

The final rules particularly seek to give relief to the subset of employers just above the 50 full-time employee threshold who need slightly more time to provide employee health-care coverage, in many cases for the first time, a second senior Treasury official said during the call. The agency understands that there are legitimate cases in which employers may be downsizing for economic reasons, the second official said.

By delaying compliance for the subset of midsize employers, the Treasury is making use of its broad authority to implement the tax code in a manner to benefit tax administration, the first official said. The fundamental goal of the phased-in transition relief is to achieve harmony with the law over the long term, the official said.

Republican Reaction

A chorus of congressional Republicans criticized the new rule. Speaker of the House John Boehner (R-Ohio) said the administration's move primarily favored corporations.

“Once again, the president is giving a break to corporations while individuals and families are still stuck under the mandates of his health care law,” Boehner said in a statement. “If the administration doesn't believe employers can manage the burden of the law, how can struggling families be expected to? This continued manipulation by the president breeds confusion and erodes Americans' confidence in him and his health care law. We need fairness for all, with relief from ObamaCare for every American.”

Senate Republican leader Mitch McConnell (Ky.) echoed Boehner's comments, saying the White House “seems to have a new exemption from its failed law for a different group every month. It's time to extend that exemption to families and individuals--not just businesses.” McConnell called for repeal of the health-care law, and for it to be replaced “with reforms that lower costs and that Americans support.”

'Full Steam Ahead.'

The transition relief for midsize businesses won't impact the vast majority of small business owners, John Arensmeyer, chief executive officer of Small Business Majority, said in a Feb. 10 statement.

For employers with fewer than 50 full-time employees, “nothing changes because they were already exempt from the employer responsibility requirements,” he said. “For businesses with more than 50 employees, 96 percent already offer insurance and we believe will continue to for business reasons.”

The additional delay in reporting requirements will allow businesses with 51 to 100 employees more time to adjust and provide additional input to the Treasury on how the proposed requirements will work best, he said. “The most important provisions for small business owners in the law are still moving full steam ahead,” including health insurance marketplaces and cost containment provisions, Arensmeyer said.

Flexible Implementation

“I think that both large and small employers should be very pleased with the transition relief that Treasury has provided in these final regulations,” Helen H. Morrison, a principal in the national tax department at EY in Washington and a former deputy benefits tax counsel in Treasury's Office of Tax Policy, told Bloomberg BNA Feb. 10.

“It will provide employers with the flexibility to begin implementation and phase in to 2016 when the rules will go into effect in full,” Morrison said. The transition rule for large employers with more than 100 employees that reduces the requirement that employers offer their full-time equivalent employee and dependent population coverage to 70 percent, from the 95 percent level provided in the proposed regulations “is much more favorable,” she said. The final rules appear to carry forward other helpful transition rules from the proposed regulations, Morrison said.

The final regulations also help clarify the definition of seasonal employees with respect to determining full-time equivalency for purposes of the look-back measurement period, she said.

Streamlined Reporting Guidance

The department is aware that final employer and insurer reporting rules under tax code sections 6055 and 6056 also are greatly needed in order to fully implement the final employer shared responsibility regulations, the first senior Treasury official said during the conference call.

The reporting rules should be out within a few weeks, and should significantly streamline and simplify reporting methods so that employers will have a relatively straightforward way to comply with the requirements, the official said.

That guidance will be important to have so that employers can begin the process of configuring their systems in order to comply with the law, Morrison said.


To contact the reporter on this story: Lydia Beyoud in Washington at

To contact the editor responsible for this story: Cheryl Saenz at

Text of the final regulations (RIN 1545-BL33) is available at

Text of a fact sheet on the rules is available at

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