Guidance Affects ACA’s Premium Tax Credit & Individual Mandate Provisions

The Internal Revenue Service (IRS) has increased the required contribution percentages for 2017 that are used to determine whether individuals are eligible for a premium tax credit and whether individuals are eligible for an affordability exemption from the individual shared responsibility provisions (the “individual mandate”).

Premium Tax Credit Eligibility 
An individual may be eligible for a premium tax credit to purchase health coverage through the Health Insurance Marketplace (Exchange) if, among other things, he or she is not able to get affordable coverage through an eligible employer plan that provides minimum value. For this purpose, an employer-sponsored plan is affordable for plan years beginning in 2016 if the portion of the annual premium an employee must pay for self-only coverage does not exceed 9.66% of his or her household income. This percentage will increase to 9.69% for plan years beginning in 2017.

Individual Mandate Affordability Exemption 
The individual mandate requires every individual to have minimum essential health coverage for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return. One such exemption applies when the individual cannot afford coverage because the minimum amount he or she must pay for the premiums is more than 8.13% of the individual’s household income for plan years beginning in 2016. This percentage will increase to 8.16% for plan years beginning in 2017.

Pay or Play Affordability Safe Harbors
IRS Notice 2015-87 generally provides that the employer shared responsibility (“pay or play”) regulations are expected to be amended to reflect that the applicable percentage in the affordability safe harbors should be adjusted consistent with the required contribution percentage increase above regarding eligibility for the premium tax credit (refer to Q&A #12). Because the regulations have not yet been amended, employers intending to take advantage of one or more of the three affordability safe harbors for plan years beginning in 2017 should consult a knowledgeable benefits attorney or tax specialist for specific guidance on how to proceed.

Check out our Premium Tax Credit for Individuals and Individual Mandate (Individual Shared Responsibility) sections for additional information regarding eligibility.

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