Pillsbury Winthrop Shaw Pittman

IRS releases final regulations on ‘Pay or Play’

By Mark Jones and Amber Ward

On 10 February 2014, the Internal Revenue Service (IRS) published long-awaited regulations on the employer shared responsibility provisions — or ‘Pay or Play’ — under the Patient Protection and Affordable Care Act. The final regulations provide two particularly important pieces of transitional relief to employers: (1) Pay or Play is delayed for many employers with 50–99 employees until 2016; and (2) large employers subject to Pay or Play in 2015 need only offer coverage to 70 per cent of full-time employees to avoid penalties. The final regulations also include the final rules for complying with Pay or Play. These will allow employers to now move forward with implementing a strategy to comply with Pay or Play.

Under the Affordable Care Act, ‘large employers’ with at least 50 full-time employees (including full-time equivalents) are subject to Pay or Play. Pay or Play requires large employers to either offer affordable coverage of minimum value to 95 per cent of its full-time employees and their dependents or pay a substantial assessment. The assessment can take two forms. If a large employer does not offer coverage during the calendar year to at least 95 per cent of its full-time employees and their dependents, it will owe an amount equal to the number of full-time employees employed for the year (minus 30), multiplied by $2,000 (£1,200), if at least one full-time employee obtains coverage under a state health insurance marketplace and receives a premium tax credit. If an employer offers coverage to at least 95 per cent of its full-time employees, but that coverage does not meet certain affordability or minimum value standards, and the employer has one or more full-time employees who obtain coverage under a state health insurance marketplace, the employer will owe an amount equal to the number of full-time employees who receive a premium tax credit for their coverage from the marketplace, multiplied by $3,000…

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