IRS Announces Indexed Adjustments for Affordability Determination 2021

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Rev. Proc. 2020-36 (July 21, 2020)

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The IRS has announced 2021 indexing adjustments for some crucial percentages under the Affordable Care Act (ACA). The required contribution percentage used to determine whether employer-sponsored health coverage is “affordable” for purposes of employer shared responsibility under Code§4980H has increased from the 9.5% baseline to 9.83% for 2021. (This is an increase from 9.78% for 2020)  Similarly, the percentages used to determine the amount of household income that individuals eligible for premium tax credits must contribute toward the cost of Exchange coverage have increased from both the baseline and the 2020 percentages. The percentages vary across household income bands; for 2021, the adjusted percentages range from 2.07% to 9.83%.

With this percentage of employer shared premium increasing annually, employers should evaluate the total structure of the plans they offer to maintain compliance.   There are many ways outside of insurance contracts to maintain compliance.  If you are not sure how your current plans stack up to the employer shared responsibility, contact Pervidio Benefits Services for a free evaluation. ( 866.987.1645 )

Failure to offer affordable, minimum value coverage to full-time employees may result in employer shared responsibility penalties, so the adjustments to the affordability percentage will be of interest to applicable large employers and their advisors. Unlike many indexed amounts, these adjustments require consideration of two independent variables: the growth rate of health insurance premiums relative to growth in the consumer price index. Therefore, the percentages do not necessarily increase every year, and applicable large employers need to wait for the IRS announcement to confirm each year’s percentage. Relatedly, the Code § 4980H penalty amounts are also indexed, but the indexed amounts have not yet been released for 2021.

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