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IRS Announces Decreases in ACA Affordability Threshold and Increases in ACA Employer Shared Responsibility Penalties for 2022 Plan Years

by | Jul 7, 2022 |

The IRS has recently updated its Questions and Answers on Employer Shared Responsibility Provisions under the Affordable Care Act to reflect 2022 indexing adjustments for the ACA’s affordability threshold and employer shared responsibility penalties (“ESRPs”).

Background.  Under the ACA, applicable large employers (“ALEs”) that fail to offer affordable minimum essential coverage to at least 95% of their full-time employees (and their dependents) under an employer-sponsored plan may be subject to an ESRP.  Whether an employer’s health insurance coverage is affordable under the ACA is determined by applying an affordability threshold that is indexed for inflation and adjusted each year.

The ACA’s ESRPs are also indexed for inflation and adjusted annually.  Under IRC Section 4980H(a), an ALE is subject to an ERSP if it fails to offer at least 95% of its full-time employees (and their dependents) the chance to enroll in minimum essential coverage under an eligible employer-sponsored plan, and at least one full-time employee is allowed a premium tax credit.

NOTE: This penalty is calculated by multiplying the total number of full-time employees (minus 30) by the applicable penalty amount.

An ALE is also subject to an ERSP under IRC Section 4980H(b), if it offers minimum essential coverage to at least 95% of its full-time employees, but the coverage is not affordable and at least one full-time employee receives a premium tax credit.

NOTE: This penalty is calculated by multiplying the total number of full-time employees who receive a premium tax credit for any month by the applicable penalty amount.

2022 Plan Years.  For plan years beginning in 2022:

  • Affordability: An employer’s health insurance coverage is considered affordable if an employee’s required contribution for self-only coverage does not exceed 9.61% of the employee’s household income (a decrease of .22% from the 2021 affordability threshold of 9.83%).
  • ESRP Amounts: The Section 4980H(a) ESRP amount is $2,750 (a $50 increase from the 2021 amount of $2,700), and the Section 4980H(b) ESRP amount is $4,120 (a $60 increase from the 2021 amount of $4,060.

The IRS’s updated Questions and Answers on Employer Shared Responsibility Provisions under the Affordable Care Act are available at: Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act | Internal Revenue Service (irs.gov).