Welcome to the first edition of The ACA Checkup –a series outlines offering a quick summary of key points of the ACA and how it can impact you, your business and your employees. This edition will focus on the definitions of and regulations for employers.
The Affordable Care Act is very specific in outlining employer responsibilities for small and large employers. The size and structure of your workforce determines what taxes, subsidies and penalties apply to you. Because there are different provisions of the ACA for small and large employers, we will tackle each segment separately, beginning with a summary for small employers first.
First, the good news – small employers are exempt from many of the ACA provisions and requirements, including the employer shared responsibility provisions and the employer information reporting provisions. Now, the less good news – the definition of a small employer is not as simple as it sounds, and, as you can expect, there are lots of rules and regulations to consider when determining your status.
Under the ACA, a Small Employer is defined by the IRS as:
An employer with fewer than 50 full-time employees, including full-time equivalent (FTE) employees, on average during the prior year. What is an FTE? A full-time equivalent employee is an individual employed on average at least 30 hours of per week. 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week.
Chances are you probably have a mixed group employees with some full time, some part time and maybe even seasonal workers. Well, there are regulations for non-full time employees:
Part Time Employees Part time employees are counted as partial FTEs. Basically, two half-time employees count as one FTE. That means 20 half-time employees are equivalent to 10 FTEs.
Seasonal Employees Seasonal workers are taken into account in determining the number of full-time employees only if they worked for more than 120 days during a calendar year.
If your regular workforce changes throughout the year, you’ll need to use average work size to determine small or large group status.
One additional item to consider – if you are part of a larger organization with common ownership, the ACA aggregates all the employees across all the related groups and considers that as a single employer.
One final note on group status – the ACA had a provision that all groups from 51 – 100 employee size would be defined as part of the small group market beginning in 2016. The president recently signed into law an amendment to the ACA that allows states the option of keeping the existing 50 employee definition or moving to the 100 employee definition. Without this change, many firms that are considered large group today would have been forced to purchase coverage in the more regulated, and more expensive, small group market.
So now that you’ve determined your company is considered a small employer under the ACA, what do you need to know as an employer?
The IRS and Small Business Association have compiled a list of items that apply to small employers. Not all of these provisions may apply to all small group employers. As a small group employer:
- You must withhold and report an additional 0.9 percent on employee wages or compensation that exceed $200,000 (the employer portion of the tax remains unchanged at 1.45%). Learn more.
- You may be required to report the value of the health insurance coverage you provided to each employee on his or her Form W-2.
- Effective for calendar year 2015, if you provide self-insured health coverage to your employees, you must file an annual return reporting certain information for each employee you cover. The first of these reports must be filed in early 2016. Refer to these Q&As from IRS for more information. Also, if you self-insure, you may also be required to pay a fee to help fund the Patient- Centered Outcomes Research Trust Fund.
Some small employers choose not to offer employer sponsored health plans to your employees, but instead offer to reimburse employees for premiums they pay for health insurance. This is called an Employer Health Care Arrangement or Employer Payment Plans. There have been changing regulations around this type of arrangement, but generally these do not satisfy the employer requirements under the Affordable Care Act and may be subject to $100/day excise tax per applicable employee. You can find out more about Employer Payment Plans on the IRS FAQ page.
Of course there are also many other requirements that have been inforce for several years for employers of all sizes who offer group coverage – Exchange Notification, Minimum Plan Requirements, Eligibility and Enrollment Requirements.
One bright spot for eligible small employers is the availability of Small Business Tax Credits. In addition to the many ACA exemptions, certain small group employers may also be eligible for Tax Credits to offset health care costs: If you have Fewer than 25 full-time equivalent employees, and meet the following criteria, you may be eligible for a Small Business Health Care Tax Credit to help cover the cost of providing coverage. To qualify your organization must meet the following criteria:
- Have fewer than 25 full-time equivalent employees
- Pay an average wage of less than $50,000 a year
- Pay at least half of employee health insurance premiums
- Purchase coverage through the small business health options program, also known as the SHOP marketplace.
It’s definitely worth investigating if you are a small business owner – the tax credits can add up to some real dollars: Up to 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers. Even if you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments. To find out more and view a tax credit estimator, visit the IRS Small Business Resource page.
Running a small business today is more challenging than ever, but you don’t need to go it alone. Health insurance marketplace makes it easy to choose the right coverage for your business. Our licensed agents will help you navigate the details of the ACA employer mandate so that your business stays in compliance – and your employees have health insurance that works for them.