The statute says that affordable means the coverage most not cost more than 9.5% of the employee's household income. A similar concept is used in explaining who is eligible for the Premium Tax Credit (PTC) (the individual cannot have been offered affordable coverage by their employer). But, the measure of "affordable" described at Section 36B for the PTC says that measure is indexed annually. That language should also be at Section 4980H but is not.
In late 2015, the IRS addressed this problem and told us that the affordability percentage at Section 36B will also be used at Section 4980H (see Q&A 12 of Notice 2015-87). For 2015, that factor is 9.56% rather than 9.5%. The tax tip issued by the IRS on 3/23/16 says the affordability factor is 9.5%. While it doesn't say the year, it should be assumed that the year is 2015 or 2016. AND, the factor is 9.66% for 2016! (per Rev. Proc. 2014-62)
Why can't the IRS tip provide this information? Did the IRS just overlook it? Perhaps. These are some of the most complex tax provisions of the Affordable Care Act.
There is no penalty risk to ALEs by the error or oversight because if the plan is affordable at 9.5%, it is also affordable using 9.66%. Also, to note even more aspects of the complexity of Section 4980H, the last sentence of Q&A 12 of Notice 2015-87 states: " For all periods, applicable large employers may rely on the 9.5 percent standard as adjusted pursuant to §36B(c)(2)(C)(iv) in applying the alternative reporting method for qualifying offers." btw, there are safe harbors employers can use to meet the affordability measure which is a great idea given that employers don't know the household income of their employees!
Does it have to be this complicated? No. I believe there are numerous ways the ACA tax provisions can be simplified and made more equitable.
What do you think?