Supreme Court Upholds ACA Tax Credits; Employers Must Continue to Play or Pay

Employee Benefits News

Client Alert

In a much-anticipated decision, yesterday the Supreme Court upheld in King v. Burwell the validity of tax credits under the Patient Protection and Affordable Care Act (ACA) that are available to individuals in States that have Federal Exchanges. Citing the principal reforms of ACA—guaranteed issue and community rating requirements, a coverage mandate, and tax credits—the Court dismissed the core challenge to the law based on the literal wording of the statute. The Court noted that the statutory language had to be understood in context. Considering the language in context and agreeing with the regulations issued by the Internal Revenue Service (IRS), the Court construed the tax credit provisions as applying regardless of whether the Exchange is established and operated by a State or the Federal Government.

Employers and individuals must now continue to move forward in complying with ACA. In particular, “applicable large employers” covered by the coverage mandate (generally, employers with at least 50 full-time-equivalent employees) must take all necessary action to remain in compliance with the following key components of the law:

  • Employers should continue to identify and track full-time employees who must be offered coverage under ACA.
  • Employers must continue to offer minimum essential coverage that is affordable and provides minimum value to substantially all their full-time employees (i.e., 70 percent in 2015 and 95 percent in 2016 and thereafter) and provide such coverage.
  • Employers should continue preparing for required IRS information reporting applicable to employer-sponsored health coverage.
  • Employers should continue preparing for the Cadillac Tax, including analyzing whether coverage changes will be required to avoid the Cadillac Tax when it becomes effective in 2018.

Small employers—especially employers with large part-time workforces—should also closely track employee census numbers to determine when they might become applicable large employers that are subject to the coverage mandate.

If you have any questions about ACA, please contact one of the attorneys in the Employee Benefits & Executive Compensation group at Bradley Arant Boult Cummings LLP.