August 2023 Employee Benefits Compliance Alert
Release Date: August 28, 2023
IRS Announces 2024 ACA Inflation-Adjusted Affordability Rate: 8.39%
This week the IRS issued Rev Proc. 2023-29, which set forth the new ACA inflation-indexed rate of 8.39% to measure the affordability of offers of full-time employee health coverage starting January 1, 2024. This is a decrease from the current 9.12%, which means, in essence, that employers will have to contribute more premium to make the employee’s contribution satisfy the 8.39% threshold. The new affordability rate is effective for plan years beginning on or during 2024.
1. Who Does This Apply To?
Compliance with the 8.39% rate will fall on applicable large employers with 50 or more full-time or full-time equivalent employees during the calendar year 2023.
2. How Do I Know If I’m a Large Employer?
The IRS has provided the following guidance:
In general, an employer’s status as an applicable large employer for a calendar year is determined by taking the sum of the total number of full-time employees (including any seasonal workers) for each calendar month in the preceding calendar year and the total number of FTEs (including any seasonal workers) for each calendar month in the preceding calendar year and dividing by 12. The result, if not a whole number, is then rounded to the next lowest whole number. If the result of this calculation is less than 50, the employer is not an applicable large employer for the current calendar year. If the result of this calculation is 50 or more, the employer is an applicable large employer for the current calendar year, unless the seasonal worker exception in paragraph (b)(2) of this section applies.
(c) Full-time equivalent employees (FTEs)—(1) In general, in determining whether an employer is an applicable large employer, the number of FTEs it employed during the preceding calendar year is taken into account. All employees (including seasonal workers) who were not employed on average at least 30 hours of service per week for a calendar month in the preceding calendar year are included in calculating the employer’s FTEs for that calendar month.
(2) Calculating the number of FTEs. The number of FTEs for each calendar month in the preceding calendar year is determined by calculating the aggregate number of hours of service for that calendar month for employees who were not full-time employees (but not more than 120 hours of service for any employee) and dividing that number by 120. In determining the number of FTEs for each calendar month, fractions are taken into account; an employer may round the number of FTEs for each calendar month to the nearest one hundredth.
3. Which Employees Have to Be Offered Health Coverage That Is Affordable?
Only full-time employees who average 30 hours a week or more of work for an employer as defined in #2 above.
4. Are There Differing Methodologies Available to Determine If I Offer Coverage That Satisfies the 2024 8.39% Rate?
There are three methodologies, or safe harbors, from which you can pick:
- W-2 Wages
- Rate of Pay
- Federal Poverty Line
An employer can use the same methodology for all of its employees or use different methodologies for employees in different categories, provided that the categories used are reasonable and the employer uses one on a uniform and consistent basis for all employees in a particular category.
More information about the three methods can be found at this link:
5. What Will Happen If an Employer Fails to Offer Affordable Coverage to a Full-Time Employee?
The employer will be subject to a penalty if the employee obtains subsidized health coverage or premium discounted coverage under the Affordable Care Act.
6. Here Are Suggested Action Steps:
- Determine whether you are a large employer.
- Work with your Fred C. Church Account Manager to determine the proper employer contribution / employee contribution strategy to assure compliance in 2024.
Note: This alert constitutes compliance advice from the Fred C. Church Agency as your employee benefits broker and does not establish an attorney-client relationship with the recipient, who is free to consult with legal or tax counsel of their own choosing.
