Newly released Revenue Procedure 2014-37 increases the threshold used to determine if an employer offers affordable coverage. This new guidance provides that an employer can charge an employee 9.56% of household income and coverage will be considered affordable. This is an increase from 9.5%.
Most employers will not be calculating affordability based on household income. Employers will instead be taking advantage of one of the IRS safe harbor for the affordability calculation. These safe harbors allow an employer to calculate affordability by determining if the premium for the lowest-cost self-only coverage exceeds 9.5% of W-2 income, an employee’s rate of pay, or a measure of the federal poverty level.
It seems as if the new IRS guidance only increases to 9.56% the percentage threshold for employers basing affordability based on household income. Technically, the increase to 9.56% does not apply to the safe harbors, due to how the affordability rules are drafted. If this is the case, it is likely an oversight that will be clarified in the future by the IRS.
Employers should confirm that coverage offered to employees meets minimum value and is affordable.
