The IRS recently released Revenue Procedure 2021-36, which contains the new affordability rate for health plan years beginning in 2022 pursuant to the Affordable Care Act (“ACA”). The affordability rate is applied to the employee’s salary or rate of pay to determine if the health care premium is considered “affordable” for ACA purposes. The IRS has decreased the safe harbor percentage for affordability from 9.83% in 2021 to 9.61% in 2022. The ACA employer mandate or “pay-to-play” is the legislation that requires that all Applicable Large Employers (“ALEs”), which are defined as employers with 50 or more full-time or full-time equivalent employees), to offer affordable insurance to their employees. Under the ACA, an employer must offer a health plan with minimum essential coverage (“MEC”) and minimum value, that is affordable to their employees or face a penalty. With the affordability percentage being decreased, employers may need to reduce their employee monthly contribution in 2022. To avoid penalties, health insurance for single-only coverage must meet one of three employer’s safe harbor affordability standards. Employers should review their employee contribution for 2022 health plans to confirm they are meeting one of the affordability safe harbors.
- Federal Poverty Level (“FPL”)
- Form W2 Wages
- Rate of Pay
Using the federal poverty level safe harbor, the monthly contribution for the lowest cost plan option should not exceed $103.14 per month ((9.61% x $12,880)/12 FPL for 2021). The adjusted percentage applies to the plan year, not the calendar year. Therefore, if an employer has a non-calendar year plan, they will continue to use the 9.83% to determine affordability in 2022 until their new plan begins. If the health plan employee contribution does not meet the FPL affordability safe harbor, the employer can use one of the other safe harbors to determine affordability. The rate of pay safe harbor is calculated by using the lowest hourly rate of pay for an hourly full-time employee, multiplied by 130 hours (required hours to be eligible for an offer of health insurance).
To avoid exposure to IRS penalties, employers should consult a knowledgeable ACA reporting company to make sure they are adhering to the ACA reporting guidelines.
SPS/GZ is a full-service tax reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file Forms 1099, Affordable Care Act tax forms, and Forms 3921 and 3922. Reach out today at sales@greenzapato.com or call at (888)375-3049.
