Notice 2012-58 appears in the Internal Revenue Bulletin 2012- 41 [PDF 468 KB], dated Tuesday, October 9, 2012.
Section 4980H was added to the Code by the health care reform of 2010, and generally requires an applicable large employer having 50 or more full-time employees to offer affordable health care coverage or be required to make a shared responsibility payment. This provision is effective for months beginning after December 31, 2013.
In May 2011, the IRS—in Notice 2011-36—requested comments on a number of possible rules and approaches for interpreting and applying section 4980H. See TaxNewsFlash-United States: Treasury, IRS Request Comments on Future Guidance Regarding Employers’ “Shared Responsibility” and Other Requirements Under the Health Care Reform Legislation
In September 2011, the IRS—in Notice 2011-73—proposed an “affordability safe harbor” to make it easier for employers to determine whether health care coverage that they offer is affordable, thus allowing employers that offer coverage to employees to measure the affordability of that coverage by suing wages that the employer paid to an employee (instead of the employee’s household income). This safe harbor was applicable only for purposes of the employer shared responsibility provision. See TaxNewsFlash-United States: IRS proposes “affordability safe harbor” for use by employers in measuring healthcare coverage offered to employees; comments are requested
In February 2012, the IRS issued a list of frequently asked questions (FAQs)—in Notice 2012-17 [PDF 49 KB]—concerning provisions governing automatic enrollment, employer shared responsibility, and the 90-day limitation on waiting periods.
Notice 2012-58 modifies and expands the previous IRS guidance, and includes a safe harbor method that employers may apply to specified newly hired employees.
Notice 2012-58 expands the safe harbor method (provided by Notice 2011-73) to provide employers the option to use a look-back measurement period of up to 12 months to determine whether new variable hour employees or seasonal employees are full-time employees, without being subject to a payment under section 4980H for this period with respect to those employees.
An employee is a variable hour employee if, based on the facts and circumstances at the date the employee begins providing services to the employer (the start date), it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week.*
*The 30 hours per week average reflects the statutory definition of full-time employee in section 4980H(c)(4) and is the definition of “full-time employee” as used in Notice 2012-58.
Notice 2012-58 also:
- Provides employers the option to use specified administrative periods (in conjunction with specified measurement periods) for ongoing employees and certain newly hired employees
- Facilitates a transition for new employees from the determination method the employer chooses to use for them to the determination method the employer chooses to use for ongoing employees
- Provides employers reliance, at least through the end of 2014, on the guidance contained in Notice 2012-58 and on approaches described in prior notices:
- For ongoing employees—an employer will be permitted to use measurement and stability periods of up to 12 months
- For new employees who are reasonably expected to work full-time—an employer that maintains a group health plan that meets certain requirements will not be subject to an assessable payment under section 4980H for failing to offer coverage to the employee for the initial three months of employment
- For all employees—an employer will not be subject to an assessable payment under section 4980H(b) for an employee if the coverage offered to that employee was affordable based on the employee’s Form W–2 wages reported in Box 1 (referred to as the “affordability safe harbor”)
The goals of Notice 2012-58 are intended to encourage employers to continue providing and potentially to expand group health plan coverage for their employees by permitting employers to adopt reasonable procedures to determine which employees are full-time employees without becoming liable for a payment under section 4980H, to protect employees from unnecessary cost, confusion, and disruption of coverage, and to minimize administrative burdens on the affordable insurance exchanges.
Simultaneously with the issuance of Notice 2012-58, Treasury, the Labor Department, and the Department of Health and Human Services (HHS) are jointly providing administrative guidance for group health plans and group health insurance issuers, to provide that any waiting period under a group health plan must not exceed 90 days. To clarify how the 90-day waiting period limitation coordinates with section 4980H, Notice 2012-58 applies portions of the three departments’ separate and simultaneous guidance.