By Jennifer Carsen, JD, Legal Editor

The Internal Revenue Service (IRS) really kicked things into high gear at the very end of 2015. While the rest of us were winding down, hanging out with friends and family, and eating far too many gingerbread men (or perhaps that was just me), the industrious tax elves slipped a few festive bonuses under the tree for employers.

First, as we reported recently, the IRS pushed back some of the deadlines for 2015 Affordable Care Act (ACA) reporting—a holiday blessing indeed for employers still trying to make sense of the voluminous recordkeeping requirements.

Second, the IRS issued a much-needed clarification on the income percentages for the ACA’s affordability safe harbors.

In Revenue Procedure 2014-37, the IRS increased to 9.56% for 2015 (up from 9.5%) the percentage of an employee’s household income that can be spent on group health insurance and still be considered “affordable” under the ACA’s play-or-pay provisions. That amount has since been increased to 9.66% for 2016.

Because it can be difficult—if not downright impossible—to ascertain an employee’s household income, the ACA regulations provide employers with their choice of any one of three alternate “safe harbors” to determine whether their group health insurance is considered affordable under the ACA:

• Percentage of employee’s W-2 income
• Percentage of employee’s rate of pay
• Percentage of the federal poverty line

The rate for all three of these safe harbors was set at 9.5% in 26 CFR Section 54.4980H-5.

And here’s where the problem arose: While the actual standard for affordability (percentage of an employee’s household income) was being increased for inflation—again, to 9.66% in 2016—the stated percentage for the three safe harbors was stuck, in the regulations, at 9.5%.

While it would seem logical to assume that these safe harbors, too, were meant to bump up to 9.66%, until recently there was no official guidance on this point. (And, of course, assuming logical behavior on the part of the IRS is a mistake no self-respecting taxpayer would ever dare make.)

Fortunately, official word has now come down. In IRS Notice 2015-87, Q&A #12, the agency makes clear that the safe harbor percentages are to be adjusted in tandem with the affordability percentage—so it’s now 9.66% across the board for 2016.

While complying with the ACA will never be easy, clarity on points like these makes compliance just a little less vexing.