On Feb. 10, 2014, the Internal Revenue Service issued final regulations interpreting Internal Revenue Code section 4980H, requiring “shared responsibility for employers regarding healthcare,” or more informally, the employer mandate or the pay-or-play rules.
Section 4980H only applies to “large employers” which are those that averaged 50 full-time employees on business days during the preceding year. For the purposes of determining whether an employer is a large employer, “full-time equivalent” employees as well as full-time employees are taken into account. Notice 2013-45, which the IRS issued last July, provided transition relief by postponing penalty assessments under section 4980H and suspending reporting requirements for large employers for 2014. The newly issued guidance also offers transition relief by deferring to 2016 application of the employer mandate to certain eligible employers.
The pay-or-play rules will apply only to employers with 100 or more full-time employees for 2015:
For 2016 and beyond, the pay-or-play rules will apply to employers with 50 or more full-time employees.
Employers with non-calendar year plans are subject to the employer mandate based on the start of their 2015 plan year rather than on Jan. 1, 2015. The IRS is evaluating whether this relief will extend to employers who first become subject to the employer mandate in 2016.
Certain transition relief contained in the proposed regulations was also extended, including:
Following the issuance of these final regulations, medium-sized employers should determine, as soon as possible, whether they employ on average at least 50 but fewer than 100 full-time employees (including full-time equivalent employees) on business days during 2014. This will determine whether the transitional guidance exempting employers in the 50 to 99 full-time employee range from the pay-or-play rules in 2015 will apply.
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