Beginning in 2014, large U.S. employers that do not offer a minimum level of affordable health coverage to their full-time employees may be required to pay an assessment of up to $3,000 per employee. For plan years beginning in 2015, the Internal Revenue Service (“IRS”) is proposing to extend this assessment to employers that fail to offer adequate health coverage to the children (up to age 26) of their full-time employees. Proposed “pay or play” regulations released on December 28, 2012 also include rules for determining whether an entity is a “large employer” subject to the shared responsibility requirements, identifying which employees and dependents must be offered coverage, and calculating any payment that may be due.

What Are the Shared Responsibility Payments?

Beginning in 2014, an employer will owe a shared responsibility payment for any month in which it:

Offers health coverage to less than 95% of its full-time employees (or their dependents after 2014), and at least one full-time employee receives a premium tax credit to help pay for coverage from a health care exchange; or

Offers health coverage that is unaffordable or does not provide minimum value, and at least one full-time employee receives a premium tax credit to help pay for coverage from a health care exchange.

Affordable Coverage. Coverage is considered to be unaffordable for an employee if the employee’s share of the premium would cost more than 9.5% of his or her annual household income. Under the proposed regulations, employers that otherwise provide adequate health coverage to their full-time employees may assume that the health coverage they offer is affordable for purposes of the shared responsibility payment, if the cost of coverage to an employee would not exceed:

9.5% of the wages the employer pays the employee that year, as reported on Form W-2;