Cash in Lieu Payments

IRS Notice 2015-87 states that cash in lieu payments must be considered in the affordability calculation portion of the Employer Mandate.

Example:

• An employer offers a group medical plan for which an employee must contribute $100 for their employee-only coverage.
  • That same employer offers $100 as a cash in lieu payment to employees who waive coverage.
  • For purposes of the affordability calculation, in the IRS's opinion, the actual "cost" of the contribution is $200. The $100 that the employee contributes for their benefits plus the $100 they forego by not waiving coverage.
  • In other words, an employee who takes the benefits is "paying" $200 more than the employee who waives coverage.
    • That total, $200, must be less than the W-2 monthly wage affordability percentage for the applicable year to meet the affordability safe harbor.