Eight Types of Transition Relief from the Affordable Care Act

October 29, 2015

By Tommy Lee, partner; Anita McBurney, senior manager; and Bob Carreker, senior manager

With the advent of the Affordable Care Act’s requirements, applicable large employers (ALEs) are faced with a substantial reporting burden as they adjust. Fortunately, the IRS has provided eight forms of transition relief for 2015 that employers can use to ease the weight of the ACA requirements.

1. ALEs with fewer than 100 full-time employees are not subject to employer shared responsibility provisions in 2015.

Applicable large employers with fewer than 100 full-time employees (including full-time equivalent employees) in 2014 will not be subject to the employer shared responsibility provisions in 2015, provided you meet certain conditions regarding your maintenance of workforce and pre-existing health coverage. Additionally, if you operate on a non-calendar year plan year, months in 2016 that are part of the 2015 plan year are also not subject to the provisions.

However, this does not mean that you are exempt from the related information reporting requirements for 2015.

2. Shorter period for determining ALE status

Instead of choosing to measure your ALE status on the total of full-time employees (including full-time equivalent employees) for the entirety of 2014, you can instead choose to calculate your ALE status using any consecutive six-month period of your choice during 2014.

3. Relief for non-calendar year plans

If your company sponsors a non-calendar year plan, additional relief may be available for the months in 2015 prior to the beginning of the 2015 plan year with respect to certain employees, assuming certain conditions are met.

4. Treatment of offers of minimum essential coverage for pay periods in January 2015

Normally, if an employer does not offer minimum essential coverage (MEC) to a full-time employee for any day of a calendar month, that employee is considered to have not been offered MEC during the entire month.

However, for January 2015, as long as an employee is offered MEC no later than the first day of the first payroll period beginning in January 2015, that employee will be treated as having been offered MEC for the entirety of the month.

5. MEC for dependents

Normally, an offer of coverage to a full-time employee only qualifies as an offer of MEC for the employer if the employer also offers MEC to the full-time employee’s dependents. The IRS has offered to exempt employers from this obligation for the 2014 and 2015 plan years as long as the employer meets certain conditions.

6. Reduction of MEC offers from 95 percent of full-time employees to 70 percent

One of the two employer shared responsibility payments pertains to whether an employer offered MEC to at least 95 percent of its full-time employees and, by definition, their dependents. For 2015 plans and 2015 non-calendar year plans (including the plan months in 2016), employers are allowed to offer MEC to 70 percent of employees instead of 95 percent.

7. Shorter measurement periods for identifying full-time employees

For stability periods beginning 2015, employers may use a transition measurement period that is shorter than 12 consecutive months but no less than six under certain conditions. You can begin this period no later than July 1, 2014, and it must end no earlier than 90 days before the first day of the 2015 plan year.

8. Reduction of employees used to calculate the employer shared responsibility payment

If an ALE doesn’t offer MEC to its full-time employees and their dependents, the employer becomes subject to the employer shared responsibility payment. In such cases, the annual payment is $2,000 per full-time employee, after excluding the first 30 employees. However, for 2015, ALEs with 100 or more full-time employees (including full-time equivalent employees) who are subject to this payment can exclude the first 80 employees instead of 30, reducing the payment considerably.

Given the substantial burden placed on ALEs by the ACA, the transition relief provided by the IRS is a welcome respite from some of the more onerous requirements. Companies who qualify for the relief should make sure they’re not missing out on an opportunity to make the transition to ACA reporting easier.

For more information on ACA transition relief, contact Tommy Lee at tommy.lee@aprio.com or 770-353-7170, Anita McBurney at anita.mcburney@aprio.com or 770-353-7188 or Bob Carreker at bob.carreker@aprio.com or 770-353-5084.

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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About the Author

Tommy Lee

Tommy is the partner-in-charge of Aprio's Restaurant, Franchise & Hospitality group. His practice focuses on small and mid-sized retail, franchise and hospitality companies and real estate firms. Tommy has expertise in corporate structuring arrangements, multi-state and international tax planning, and corporate and individual tax mitigation.