Notice 2011-73

Part III. Administrative, Procedural, and Miscellaneous
Request for Comments on
Health Coverage Affordability
Safe Harbor for Employers
(Section 4980H)
Notice 2011–73
I. PURPOSE AND BACKGROUND
This request for comments is intended
to continue the process of developing regulatory guidance on the shared employer
responsibility provisions of § 4980H of
the Internal Revenue Code (Code). The
process was initiated with the release of
Notice 2011–36, 2011–21 I.R.B. 792,
which described potential approaches to
interpreting and applying certain provisions of § 4980H and invited comments
on those approaches. Section 4980H was
added to the Code by § 1513 of the Patient Protection and Affordable Care Act
(Affordable Care Act) enacted March 23,
2010, Pub. L. No. 111–148, and amended
by § 1003 of the Health Care and Education Reconciliation Act of 2010, enacted
March 30, 2010, Pub. L. No. 111–152.
Section 4980H is effective for months
beginning after December 31, 2013.
Generally, § 4980H provides that an
applicable large employer (as defined in
§ 4980H(c)(2)) is subject to an assessable
payment if any full-time employee is certified to receive an applicable premium
tax credit or cost-sharing reduction and either (1) the employer does not offer to
its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible
employer-sponsored plan (§ 4980H(a))1;
or (2) the employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage that either is unaffordable within the
meaning of § 36(B)(c)(2)(C)(i) or does not
provide minimum value within the meaning of § 36(B)(c)(2)(C)(ii) (§ 4980H(b)).
Notice 2011–36 requested comments
on several discrete issues under § 4980H
and specifically on the issue of who is a
full-time employee, including a potential
“look-back/stability period safe harbor”
1

method for determining full-time status.
This notice requests comments on a proposed safe harbor, which could be incorporated in future proposed regulations, for
determining the affordability of coverage
under an eligible employer sponsored plan
for purposes of an employer’s potential assessable payment under § 4980H(b). The
Department of the Treasury (Treasury)
and the Internal Revenue Service (IRS)
intend to publish proposed regulations on
the issues addressed in Notice 2011–36,
on the proposed employer safe harbor outlined in this notice and on a broader set of
issues under § 4980H.
II. PROPOSED AFFORDABILITY
SAFE HARBOR FOR EMPLOYERS
Whether an applicable large employer’s
health coverage is affordable to its fulltime employees is essential in determining
whether an employee can receive a premium tax credit and, in turn, whether the
employer is subject to an assessable payment under § 4980H(b). Coverage under an employer-sponsored plan is affordable to a particular employee if the employee’s required contribution (within the
meaning of § 5000A(e)(1)(B)) to the plan
does not exceed 9.5 percent of the employee’s household income for the taxable
year.2 Section 36B(c)(2)(C)(i). Household
income for this purpose is defined as the
modified adjusted gross income of the employee and any members of the employee’s
family (which would include any spouse
and dependents) who are required to file an
income tax return. Section 36B(d)(2)(A).
Modified adjusted gross income means adjusted gross income (within the meaning
of § 62) increased by amounts excluded
from gross income under § 911 and by the
amount of any tax-exempt interest a taxpayer receives or accrues during the taxable year. Section 36B(d)(2)(B).
Because affordability is determined
by reference to household income and
because household income is determined
by reference to variables that are generally unknown to an employer (i.e., the
modified adjusted gross income of the
employee and the employee’s spouse and

dependents), employers may encounter
practical difficulties in assessing whether
the coverage they are offering is affordable to certain employees. To address
this concern and provide employers a
more workable option for determining
the affordability of their health coverage,
Treasury and the IRS expect to propose an
affordability safe harbor whereby, for purposes of § 4980H(b), affordability of an
employer’s coverage would be measured
by reference to an employee’s wages from
that employer. Wages for this purpose
would be the total amount of wages as
defined in § 3401(a), which is the amount
required to be reported in Box 1 of Form
W–2, Wage and Tax Statement (W–2
wages).
It is contemplated that under this proposed safe harbor, an employer would
need to meet certain requirements, including: (1) that the employer must offer
its full-time employees (and their dependents) the opportunity to enroll in
minimum essential coverage under an eligible employer-sponsored plan, and (2)
that the employee portion of the self-only
premium for the employer’s lowest cost
coverage that provides minimum value
(the employee contribution) must not exceed 9.5 percent of the employee’s W–2
wages. If the employer satisfies both of
these requirements for a particular employee (as well as any other conditions for
the safe harbor), the employer would not
be subject to an assessable payment under
§ 4980H(b) with respect to that particular
employee, even if that employee receives
a premium tax credit or cost sharing reduction. Application of this safe harbor would
be determined after the end of the calendar
year and on an employee-by-employee
basis, taking into account the W–2 wages
and the employee contribution. So, for
example, the employer would determine
whether it met the proposed affordability
safe harbor for 2014 for an employee by
looking at that employee’s W–2 wages for
2014 and comparing 9.5 percent of that
amount to the employee’s 2014 employee
contribution.

Minimum essential coverage is defined in § 5000A(f) of the Code. The definition of “eligible employer-sponsored plan” in § 5000A(f)(2) applies for purposes of § 4980H.

2

The 9.5 percent may be adjusted after 2014 to reflect rates of premium growth relative to growth in income and after 2018 to reflect rates of premium growth relative to growth in the
consumer price index. See Prop. Treas. Reg. §§ 1.36B–0 through 1.36B–5.

2011–40 I.R.B.

474

October 3, 2011

Although the determination of whether
an employer actually satisfied the safe harbor would be made after the end of the calendar year, an employer could also use the
safe harbor prospectively, at the beginning
of the year, by structuring its plan and operations to set the employee contribution at a
level so that the employee contribution for
each employee would not exceed 9.5 percent of that employee’s W–2 wages for that
year. It is contemplated that employers,
on a consistent basis, would be permitted
to make reasonable and necessary adjustments for pay periods so that the employee
contribution does not exceed 9.5 percent of
the employee’s W–2 wages.
By allowing employers to base their
affordability calculations on each employee’s W–2 wages (which employers
know) instead of each employee’s household income (which employers generally
would not know), the safe harbor could
provide a more workable and practical
method for measuring the affordability of
an employer’s coverage for § 4980H(b)
purposes.
In most instances, if employer-sponsored coverage were affordable based on the employee’s W–2 wages,
it would also be affordable based on the
employee’s household income because an
employee’s household income is likely
to be greater than the employee’s W–2
wages. In that case, a premium tax credit
would not be available to that employee
and, in turn, the employer would not be
subject to an assessable payment under
§ 4980H(b) with respect to that employee.
In some circumstances, an employee’s
household income may be less than the
employee’s W–2 wages (for example, because of adjustments to gross income for
alimony paid or losses due to self-employment). The proposed safe harbor would
address those situations by allowing the
employer to rely on an employee’s W–2
wages for analyzing the affordability of
the employer’s health coverage with respect to that employee.
This proposed affordability safe harbor
would apply only for purposes of determining whether an employer’s coverage
satisfies the 9.5 percent affordability test
for purposes of the assessable payment
under § 4980H(b). For example, the safe
harbor would not affect an employee’s
eligibility for a premium tax credit under § 36B. An employee’s eligibility for

October 3, 2011

the premium tax credit would continue
to be based on the affordability of employer-sponsored coverage relative to an
employee’s household income. Accordingly, in some instances, the effect of
the safe harbor could be to treat an employer’s offer of coverage to an employee
as affordable (based on W–2 wages) for
purposes of determining whether the employer is subject to an assessable payment
under § 4980H(b), while that same offer of
coverage could be treated as unaffordable
(based on household income) for purposes
of determining whether the employee is
eligible for a premium tax credit under
§ 36B.
III. REQUEST FOR COMMENTS
As noted, Treasury and the IRS intend
to issue guidance, including proposed regulations, on the employer shared responsibility provisions under § 4980H. To help
inform that guidance, comments are invited on the affordability safe harbor for
employers for purposes of § 4980H(b). In
particular, comments are invited on the following issues:

•

•

•

Whether or how wages and employee
contribution amounts would need to be
determined for employees who are employed by an employer for less than
a full year, employees who move between full-time and part-time status,
situations in which the plan year is not
a calendar year, and other similar special circumstances.
Whether there are other possible safe
harbor methods for determining the affordability of coverage under an employer-sponsored plan for purposes of
calculating an employer’s potential assessable payment under § 4980H(b).
How to coordinate any affordability
safe harbor with the full-time employee look-back/stability safe harbor
described in Notice 2011–36.

Comments must be submitted by
December 13, 2011. Comments should
include a reference to Notice 2011–73.
Send submissions to CC:PA:LPD:PR
(Notice 2011–73), Room 5203, Internal
Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
Submissions may be hand delivered Monday through Friday between the hours

475

of 8 a.m. and 4 p.m. to CC:PA:LPD:PR
(Notice 2011–73), Courier’s Desk,
Internal
Revenue
Service,
1111
Constitution Avenue, NW, Washington,
DC 20044, or sent electronically,
via the following e-mail address:
Notice.comments@irscounsel.treas.gov.
Please include “Notice 2011–73” in
the subject line of any electronic
communication. All material submitted
will be available for public inspection and
copying.
NO INFERENCE
No inference should be drawn from any
provision of this notice concerning any
other provision of § 4980H or any other
section of the Affordable Care Act.
DRAFTING INFORMATION
The principal author of this notice is
Mireille Khoury of the Office of Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities).
For further information regarding this
notice, contact Mireille Khoury at (202)
622–6080 (not a toll-free call).

Update for Weighted Average
Interest Rates, Yield Curves,
and Segment Rates
Notice 2011–75
This notice provides guidance as to the
corporate bond weighted average interest
rate and the permissible range of interest
rates specified under § 412(b)(5)(B)(ii)(II)
of the Internal Revenue Code as in effect for plan years beginning before 2008.
It also provides guidance on the corporate bond monthly yield curve (and
the corresponding spot segment rates),
and the 24-month average segment rates
under § 430(h)(2). In addition, this notice provides guidance as to the interest
rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for
plan years beginning before 2008, the
30-year Treasury weighted average rate
under § 431(c)(6)(E)(ii)(I), and the minimum present value segment rates under
§ 417(e)(3)(D) as in effect for plan years
beginning after 2007.

2011–40 I.R.B.