For medical plan years beginning in 2023, the Internal Revenue Service (IRS) recently announced a significant decrease in the affordability percentage to 9.12%, from the previous level of 9.61%. This could trigger penalties for large employers who fail to adjust to meet this new threshold.
How to Avoid Costly Mistakes
- Group medical plans have hit employers with more expensive rates. Medical rates going up with IRS affordability percentages going down means you may need to absorb more unexpected premium increases rather than pass them on to employees, if you are committed to maintaining an “affordable” plan option under ACA rules.
- You could be at increased risk for an Employer Shared Responsibility Penalty. Take the time to re-evaluate premium contribution structures if your goal is to ensure affordability. Understand that you may be impacted even if your medical rates stayed the same. Penalty risk depends on the affordability safe harbor you’ve chosen to use when reporting to the IRS. For example, to qualify to use the Federal Poverty Line safe harbor, the employee share of the monthly premium for the lowest cost plan, single coverage must be $103.28 or lower.
- The IRS has revoked the ”good faith” effort relief they offered in the past. You should be prepared to defend the accuracy of the offer of coverage and safe harbor codes your report to the IRS on Form 1095-C.
- Partner with an expert you can trust to help you evaluate your risk and ensure you are doing everything possible to avoid potential penalties.
This information provided by American Fidelity Administrative Services is intended to be educational. It is general in nature and should not be considered financial, legal or tax advice. Consult an attorney or a tax professional regarding your specific situation.