January 13, 2020

Recently, the Internal Revenue Service (IRS) issued Revenue Procedure 2019-20, which lowers the affordability threshold to 9.78% of household income (from 9.86% in 2019) for purposes of employer shared responsibility payments and premium tax credits under the ACA. Employers who do not wish to owe employer shared responsibility payments for 2020 generally have 3 options for determining whether their coverage is affordable for full-time employees.

• The employee’s contribution for the lowest cost self-only option that provides minimum value can be no more than 9.78% of Form W-2 wages; or
• The employee’s monthly contribution for the lowest cost self-only option that provides minimum value can be no more than 9.78% of 130 hours × the employee’s hourly rate of pay (or lowest hourly rate of pay during calendar month, if lower); or
• The employee’s monthly contribution for the lowest cost self-only option that provides minimum value can be no more than 9.78% of the prior year’s federal poverty level ($101.79/month for a one-person household).

If the coverage is affordable and available to all full-time employees, the employer will not owe employer shared responsibility payments.

Next Steps

We recommend that employers:

• Review current plan designs to determine if changes to employee contribution levels are necessary to eliminate risk of owing employer shared responsibility payments;
• Work with HR, payroll, and any third-party vendors to determine what steps, if any, are needed before 2020; and
• Keep in mind the out-of-pocket limits that also apply to group health plans.

More Topics

Policy & Advocacy Affordable Care Act (ACA)