Effect of Delaying Employer Penalties under the ACA

The Treasury Department posted a blogpost late yesterday noting that it would (i) publish rules about employer reporting requirements later this summer and also (ii) delay the employer “shared responsibility” payments under § 4980H of the Internal Revenue Code until 2015 (as added by § 1513(a) of the ACA). For reference, IRC § 4980H imposes the $2,000/$3,000 penalty on employers with 50 or more full-time equivalent employees if the employees enroll in the ACA’s new premium assistance tax credits

Based on our understanding of the forthcoming guidance, Jackson Hewitt Tax Service notes the following potential effects of Treasury’s announcement:

• Fewer employers may cut employee hours in 2014. This one-year respite may make employers (e.g., restaurant and retail establishments) less likely to reduce employee hours below 30 hours per week (so as to classify such employees as part-time for § 4980H penalty calculations).

• Many families with children will have an unexpected benefit. For employers who offer employee but not dependent coverage, this one-year delay may also cause employers to postpone any offer of coverage to dependents. Interestingly, this may have a positive effect on such families for two reasons. First, children without an offer of employer-sponsored coverage may be eligible for the Children’s Health Insurance Program (CHIP) if they meet the state-specific income and other eligibility requirements. Second, children without an offer of employer coverage may be eligible for the new premium assistance tax credits in 2014 even if their incomes are above the state-specific CHIP limit. Indeed, employers may be more likely to cooperate with enrollment efforts to get uninsured employees and their uninsured dependents covered under various ACA programs because they know with certainty that they will not face a penalty in 2014.
  
• States may face less pressure from business interests to expand Medicaid. Jackson Hewitt had released a report earlier this year estimating that American employers would incur $876 million to $1.3 billion in penalties in 22 states that were refusing to expand their Medicaid programs as contemplated under the ACA. Today’s decision effectively removes that penalty liability for 2014. However, employers will continue to face such penalties in 2015 and thereafter in states that do not expand their Medicaid programs.
  
• The Treasury action today addresses anxiety among employers about the lack of final regulations from the IRS. While many employers with large part-time and seasonal employees embraced the flexibility afforded to them by the IRS’ proposed approach, they voiced increasingly loud concerns that the IRS had yet to finalize this approach in a final rule. Indeed, the IRS has not publicly pledged to finalize these proposed rules before the major provisions of the ACA take effect in 2014. In an unexpected development late Tuesday, though, the Treasury Department effectively moots this issue for 2014.

Jackson Hewitt also issued a statement today in response to Treasury’s announcement. “Today’s announcement from the Treasury Department alleviates several key concerns held by a large number of American employers that have a significant part-time and seasonal workforce,” said Brian Haile, Senior Vice President for Health Care Policy at Jackson Hewitt. “The federal approach acknowledges the challenges with implementing a policy that will affect so many employers – and strikes the right balance between speedy implementation and thoughtful policy-making.” Haile further noted that, “Notwithstanding the Administration’s announcement today, we continue to expect the launch of the health insurance marketplaces on October 1, 2013.”

Please feel free to contact us if we can answer any questions or be helpful in any way.

Brian Haile
Senior Vice President for Health Policy
Jackson Hewitt Tax Service Inc.