The IRS announced the 2022 indexed adjustments for required contribution and Exchange affordability percentages under the Affordable Care Act (ACA). Employers need not apply the below referenced premium tax credit affordability percentages as this only refers to coverage in the Exchange. But it is nevertheless helpful in understanding the availability of a tax credit for some employees.
Employer Mandate Affordability Percentage
Applicable Large Employers (ALE) must offer qualifying coverage that does not require more employee contribution for that coverage than this percentage of the full-time employees’ income. The required contribution percentage is used to determine whether an employer sponsored health coverage is “affordable” for purposes of ACA employer shared responsibility. Pursuant to Code § 4980H:
- The required contribution amount is adjusted from the 9.5% baseline to 9.61% for plan years beginning in 2022 (down from 9.83% for 2021).
Premium Tax Credit
Also adjusted, is the ACA Premium Tax Credit (PTC) available to those meeting these thresholds for coverage purchased through the Exchange. The PTC was expanded by the American Rescue Plan Act of 2021 (ARPA) for the 2021 and 2022 tax years.
- The adjusted percentage for 2022 (i.e., the percentage of household income that recipients of the tax credit must pay for Exchange coverage) is unchanged from 2021; ranging from zero to 8.5%.
|Household Income % Federal Poverty Line||Initial %||Current Post ARPA %|
|Less than 150%||0.00%||0.00%|
|At least 150% but less than 200%||0.00%||2.00%|
|At least 200% but less than 250%||2.00%||4.00%|
|At least 250% but less than 300%||4.00%||6.00%|
|At least 300% but less than 400%||6.00%||8.50%|
|At least 400% and higher||8.50%||8.50%|
ALEs failing to offer affordable qualifying coverage to full-time employees may be penalized for failure to comply with the employer shared responsibility provision should any full-time employees receive a PTC for Exchange coverage. Any individuals with household income between 100-400% of the Federal Poverty Limit (e.g., $26,500 for a family of 4 is the FPL for 2021 or 400% of the FPL for a family of 4 is $106,000; adjusted annually) is typically eligible for a PTC. However, pursuant to the American Rescue Plan Act passed earlier this year, for 2021 and 2022, the upper income limit for eligibility was eliminated (meaning any household could apply for Exchange coverage and potentially receive a PTC).
Employers knowing that employees may more easily go to the Exchange to purchase more affordable options by receiving the PTC should be reminded that this is an important reason to offer affordable (as the percentage above dictates), minimum essential coverage to your full-time employees; in order to eliminate the risk of them opting out of the employer plan for the Exchange. If offering affordable coverage to the employee (while coverage must be offered to dependents as well, it need not be affordable to them), the PTC should not be available to the employee (in some cases, due to household dynamics, a PTC is sometimes provided but a penalty would not be charged if offering affordable, minimum essential coverage).
Work with your Leavitt Group trusted advisor for more information on complying with the ACA. We are here to help!