New Guidance Requires Employers to Cover Dependents or Face Penalties

In guidance released by the IRS on 12/28 it has been clarified that large employers are required to offer coverage to their employees and their dependent children up to age 26 or face a penalty. Many large employers had argued that based on some of the wording in the regulations that they should be required to offer coverage to their employees only.

The guidance states:

 The term dependents, as defined in these proposed regulations for purposesof section 4980H, does not include any individual other than children as described inthis paragraph of the preamble, including an employee’s spouse. Thus, an offer of coverage to an employee’s spouse is not required for purposes of section 4980H because section 4980H refers only to dependents (and not spouses). This definition of dependents applies only for purposes of section 4980H and does not apply for purposes of any other section of the Code. But see section IX.F. of the preamble for transition relief with respect to the requirement to offer coverage to dependents. 

The guidance does reiterate that the cost associated with determining penalty liability for employers is based on the cost and characteristices of employee-only coverage:

In contrast, an employee’s receipt of a premium tax credit or cost sharing reduction with respect to coverage for a dependent will not result in liability for the employer under section 4980H. Under section 4980H(b), liability is contingent on whether the employer offers minimum essential coverage under an eligible employer-sponsored plan, and whether that coverage is affordable and provides minimum value, as determined by reference to the cost and characteristics of employee-only coverage offered to the employee.  

To view the guidance in full click here.