The Affordable Care Act health care reform law requires employers of 50 or more full-time employees to play—by offering them affordable health benefits that provide minimum value—or pay free-rider penalties (See “IRS issues regs on ACA’s employer play-or-pay provision.”)
What’s affordable: Benefits are affordable if employees’ contributions don’t exceed 9.5% of their household income and employers pay at least 60%.
Dilemma: Since you don’t know what 9.5% of employees’ household income is, you’re in a bind. The IRS, as promised, has created three optional affordability safe harbors. (78 F.R. 217, 1-2-13)
1. W-2, Box 1 safe harbor. The IRS floated this safe harbor in 2011, and the rules are basically the same. Under this safe harbor, benefits are considered affordable if employees’ contributions for self-only coverage for the lowest cost plan don’t exceed 9.5% of their W-2, Box 1 income.
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