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IRS and Common Sense

August 23, 2011

Granted – IRS and common sense are not two items that generally go together, but in new proposed regulations we think they have it about right.

In the Affordable Care Act there are provisions that allow an employee,whose contribution to their employer’s health insurance plan would be more than 9.5% of family income, to go to the Health Insurance Exchange and get subsidized coverage. 

Do you remember reading that if the employee does that, then the employer gets whacked with a $3,000 per employee penalty?  Do you also remember the immediate reaction from the business community of – “How are we supposed to know our employees family income?”  

Setting aside our distaste for the financial penalty included in the law. The Internal Revenue Service heard the questions and concerns and earlier this year said they would develop new rules to make it easier for employers to determine if their health care plans are “affordable” and exempt from the stiff financial penalty. Guess what? They seem to have accomplished that goal. 

Under the law, starting in 2014, employers are liable for an annual $3,000 penalty for those employees whose required health insurance premium contribution for single coverage exceeds 9.5% of family income and the employees are eligible for federal premium subsidies to buy coverage through state insurance exchanges.  However, in new rules proposed Aug. 12, the IRS said it will develop a “safe harbor” where the employer’s offered health insurance plan would be considered affordable as long as the premium contribution for single coverage did not exceed 9.5%of the employee’s’ W-2 wages.

The IRS said it is developing the new safe harbor to give employers more certainty on whether their plans will pass the affordability test.

Questions or comments? Please contact Scott Lyon, Vice President Small Business Services, at (800) 362-5461 or

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