ACA Transition Relief and Who Qualifies

To ease into the employer shared responsibility (ESR) provisions of the Affordable Care Act that went into effect this year, the government has established some transition relief. Here’s a look at the transition relief that may be available for qualifying employers.

More Time for Small Employers

Applicable large employers (ALEs) with fewer than 100 full-time employees, including full-time equivalent employees, may have until 2016 to offer health insurance to eligible employees and their dependents without facing penalties.

This transition relief is available to employers who can certify that they have not reduced their workforce to remain under the threshold and have not materially reduced or eliminated health coverage previously offered. This certification needs to be included with your filing under Section 6056 for 2015.

The IRS will still grant transition relief to employers who reduced their workforce for "bona fide" business reasons.

Relief for Dependent Coverage

Some employers may not be assessed penalties solely for failure to offer coverage to all dependents. Qualifying ALEs may not face penalties for failure to offer dependent coverage, for offering coverage to some but not all dependents, or for offering coverage that does not constitute minimum essential coverage.

To qualify, the employer must not have previously offered dependent coverage in 2013 or 2014 and must have taken steps to extend coverage to dependents in 2014 or 2015.

Leeway for Employers with Non-Calendar Year Plans

ALEs with health plans that do not follow the calendar year may not be assessed penalties for not offering health coverage during the months before the 2015 plan year begins. Health coverage must meet the minimum value and affordability requirements to avoid payments for the remaining months of the year.

To qualify, the employer's plan dates must not have been modified after December 27, 2012, to start at a later date. The IRS gives the example that if an ALE had a plan with a start date of July 1, but after the cutoff changed the plan year start to December 1, this employer would not qualify for transition relief. In general, affordable health coverage that meets minimum essential coverage and minimum value requirements must be offered to the full-time employees and their dependents at the start of the 2015 plan year, in order to qualify for relief from both penalties.

Reduced Percentage of Employees Who Must Be Offered Coverage to Avoid One Potential Penalty

The IRS is granting some relief to help large employers phase in health coverage offering in 2015 by lowering the percentage of full-time employees and their dependents who need to be offered coverage in order to avoid one of the potential penalties. ALEs must offer coverage to at least 70 percent full-time employees and their dependents this year to avoid being assessed one of the two potential payments. That increases to 95 percent (or all but 5) in 2016.

Remember: Regardless of whether the business qualifies for transition relief, all ALEs must follow the reporting requirements for the entire calendar year.