IRS has published[1] the indexed affordable threshold for 2017 at 9.69 percent; up from 9.66 percent 9.56 percent for 2015. This is the multiplier used at the Exchange to determine if an applicant was offered “affordable” coverage by his/her employer. The Exchange operates under code §36B, which defines affordable as a premium for single-only coverage not exceeding 9½ percent of modified adjusted gross household income. On the other side of town, the employer is under code §4980H(b) with regards to affordability. In the regulations, IRS offers three options to measure affordability based on pay rather than household income, because it recognized that employers would find it next to impossible to know household income. Remember – employer penalties are monthly. Those “safe harbors” are….
- The W-2 Method by which you use the 9½ percent times Box 1 on the W-2. You can project and ballpark, but you don’t really know for sure until you have the W-2.
- The Federal Poverty Level Method. Here you multiply the federal poverty level for a single person times 9½ percent. The FPL for 2016 is $11,880 for 48 of the states; $14,840 for Alaska; $13,670 for Hawaii. So, $11,880 ÷12 = $990/month x .095 = $94.05; the maximum employee charge you can impose under this method.
- The Rate of Pay Method is simple for a salaried employee, because you know his/her monthly salary. It is simple for an hourly person who works set hours. But because some hourly folks’ hours vary, IRS says you can multiply the hourly pay rate times a factor of 130[2] to determine his/her “rate of pay.” Example: EE makes $14.25 an hour. Multiply this by 130 and you have a rate of pay of $1,852.50 a month…times .095 = a $175.98 premium cap for employees earning this hourly rate.
And, you can use different safe harbors for certain classes of employees. Permitted classes are salaried, hourly, job categories, employees in different geographic locations, collectively bargained employees, or any other bona fide business criteria. Example: An employer might choose to use the federal poverty method for all salaried employees and the rate of pay method for all hourly employees. Technically, the indexing of the 9½ percent is only allowed in §36B that the Exchange operates under. There is no provision for indexing in the code section the employer uses, §4980H(b). However, IRS announced last year[3] it has plans to amend the regulations under §4980H(b) to permit indexing, so employers should feel safe to use the 9.69 percent.
[1] Rev Proc 2016-24
[2] 30 hours a week times 52 weeks ÷12 months
[3] IRS Notice 2015-87
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