As ACA Compliance Deadlines Loom, IRS Attempts to Clarify Requirements

On December 16, the IRS issued final regulations clarifying their previously-established guidelines on multiple provisions of the Affordable Care Act (ACA). Since some of the resulting changes will impact employers looking to distribute their 1095-Cs in the coming months, we’ve summarized them below.


As a reminder, hours of service per ACA guidelines are hours where the employee is entitled to compensation, whether or not duties are performed. These include: worked hours, paid time off (holiday, sick, vacation, or personal time), paid workers’ comp or disability (if the employer is responsible for these payments), and special unpaid leave.


The ACA allows employees to take breaks in service of up to 12 consecutive weeks without being classified as terminated and rehired. Educational institutions are the exception – employees cannot be treated as rehires unless they have a break in service of at least 26 consecutive weeks.

Some educational institutions have been attempting to circumvent this regulation by claiming that subsets of their employees – for example, cafeteria workers or janitors – are employed by a staffing agency, and that as far as the school itself is concerned, they’re terminated at the end of the school year and rehired at the beginning of the next. The final regulations close this loophole, extending the break in service exception to employees of staffing agencies who primarily serve educational institutions.


Former or retired employees eligible for COBRA coverage are not rendered ineligible to receive Health Exchange premiums unless they actually elect to enroll in COBRA.

However, employees eligible for COBRA because of a reduction in hours are rendered ineligible to receive Exchange premiums if the offered COBRA coverage is affordable and meets minimum value, regardless of their enrollment status.


Under the ACA, employers are allowed to offer wellness incentives that reduce the cost of the employee premium. However, the IRS clarifies that when calculating whether or not a plan is affordable or meets minimum value, the employer should assume that the employee in question does NOT participate in the wellness plan and thus doesn’t qualify for the reduced costs (with the exception of tobacco cessation programs, in which case the reverse is true).


An employer can meet the ACA’s affordability requirement if its least expensive, self-only plan providing minimum value costs less than 9.5% of an employee’s household income – regardless of the plan that the employee actually elects. In 2015, as critics pointed out, many employees received coverage offers that met the affordability standard, but that weren’t actually affordable when extended to dependents. Because these employees and their families were technically offered affordable coverage, they couldn’t qualify for premiums on the Health Exchange Marketplace.

The IRS will continue using the self-only affordability threshold for 2016, and has further extended this philosophy to certain wellness incentives, particularly tobacco cessation programs. If an employee who smokes fails to enroll in a tobacco cessation program, and is thus asked to pay more than 9.5% of household income, that employee and their entire family will be ineligible for premiums on the Exchange (assuming the plan would have been affordable and met MV if the employee enrolled in the tobacco cessation program).


The IRS is increasing the penalties they impose on employers who fail to fully comply with the ACA.

For 2015, employers who don’t offer minimum essential coverage will pay up to $2,080 per full time employee if even one eligible employee receives a premium tax credit, rising to $2,160 for 2016.

Employers who provide coverage that is not affordable or that doesn’t provide minimum value will be fined up to $3,120 per eligible employee actually receiving a tax credit, rising to $3,240 for 2016.