Tax

Health Care Reform “Play or Pay” – Further Delay for Midsize Companies

February 2014
Author:  Robert Conner

Robert Conner

Director

Tax

Health Care
Manufacturing & Distribution

1801 California Street, Suite 2900
Denver, CO 80202-2606

Denver
303.861.4545

On February 10, the Treasury Department and IRS released long-awaited final regulations and frequently asked questions on the “play or pay” penalty imposed on applicable employers that do not provide minimum essential health care for employees. These final regulations provide relief to certain midsize companies by further delaying the penalty until 2016. 

In prior guidance, released in July 2013, the IRS stated that beginning in January 2015, applicable large employers with 50 or more full-time equivalent employees that do not provide minimum essential coverage—as defined by the Department of Health and Human Services—to full-time employees will be required to pay a penalty. The new regulations further delay the play or pay penalty until 2016 for midsize employers employing 50 to 99 full-time equivalent employees in 2014. However, employers in this range still will be subject to the information reporting requirements beginning in 2015.

To be eligible for the additional one-year delay, an employer must employ on average at least 50—but fewer than 100—full-time equivalent employees on business days during 2014. Also, during the period beginning on February 9, 2014, and ending on December 31, 2014, the employer may not reduce the size of its workforce or the overall hours of service of its employees unless for a bona fide business reason. Finally, during the period beginning on February 9, 2014, and ending on December 31, 2015 (or the last day of the plan year that begins in 2015 for fiscal year employers), the employer may not eliminate or materially reduce the health coverage offered as of February 9, 2014.

Limited transition relief also is provided to applicable large employers, i.e., those with 100 or more full-time equivalent employees. Under the final regulations, applicable large employers are not subject to the play or pay penalty if, for each calendar month during 2015 and any calendar months during the 2015 plan year that fall in 2016, minimum essential coverage is offered to at least 70 percent of full-time equivalent employees. For plan years beginning in 2016 and beyond, the percentage is increased to 95 percent.

To learn more about how the health care reform provisions could affect your organization, contact your BKD advisor.

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