Sweeping legislation was passed that drastically changed the U.S. health insurance industry. We’re talking, of course, about the Patient Protection and Affordable Care Act, or the ACA as it’s commonly referred to.
Several changes have been made to the ACA since it first passed nearly five years ago, which has often made it difficult for business owners to keep up with the particulars of the law. Therefore, now is a good time to take a fresh look at the law as you plan for how your business will comply with its provisions in 2015.
In particular, the IRS released final regulations this year that clarify two key provisions of the ACA. Following is a recap of these provisions and how they might affect your company.
Qualifying for the Small Employer Tax Credit
The original draft of the ACA included a premium tax credit for some small businesses providing health insurance that have fewer than 25 full-time equivalent employees (or FTEs). The final regulations clarify the criteria small businesses must meet in order to qualify for this tax credit:
1. The average annual wages of the FTEs in 2014 can be no more than $50,800. This amount will be adjusted for inflation in future years.
2. The business must make a non-elective contribution on behalf of each employee who enrolls in a qualified health plan that has been obtained through a Small Business Health Options Program (SHOP). This contribution must be a uniform percentage of at least 50 percent of the health plan’s cost.
The small employer tax credit could provide up to a 50 percent credit for the aggregate amount of non-elective contributions made to employees’ health insurance. However, the credit is reduced if the business has more than 10 FTEs and/or the FTEs’ average annual wages exceed $25,400 in 2014 (adjusted for inflation in future years).
Should You Play or Pay?
The ACA requires businesses with a minimum number of employees to offer full-time employees and their dependents what it considers to be minimum essential healthcare coverage — healthcare coverage that is deemed by the law to be affordable or provide at least minimum value. If such employers prefer not to “play” by offering such coverage, they may “pay” a $2,000 penalty for every full-time employee after the first 30.
If your business has at least 50 full-time equivalent employees or FTEs, then you will be subject to this “play or pay” provision, which is also referred to as the shared responsibility provision. The ACA defines full-time employees as those who work an average of at least 30 hours per week.
Midsized Employer Relief Provision
The good news for some employers is that they might be able to delay compliance with play or pay for one year. The IRS final regulations introduced a midsized employer relief provision that allows companies with fewer than 100 full-time employees or FTEs in 2014 to delay compliance with the shared responsibility provision until 2016.
To qualify for midsized employer relief, you must retain the health insurance you offered as of Feb. 9, 2014, next year. You must also maintain your workforce size and the aggregate hours of service next year, and certify to the IRS that your business meets these criteria. Also, you will still be subject to the large employer information reporting requirements of the ACA next year even if you qualify for midsized employer relief.
Detailed and Complex Provisions
The provisions of the ACA are detailed and complex. Therefore, you should talk to an employee benefits consultant and/or tax advisor as you finalize your company’s plans for compliance with the healthcare reform law in 2015 and beyond.
City National Bank does not provide legal or tax advice. This article is provided for general information only and should not be considered to be legal or tax advice which may only be provided by a licensed attorney or tax advisor.