HEALTH CARE REFORM

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How the Affordable Care Act Will Affect Businesses


Impact on Large Employers

Tax Penalties for Large Employers

Other Employer Requirements under the Affordable Care Act

Small Business Health Care Tax Credit

Other Useful Links for More Information on the Affordable Care Act


Impact on Large Employers
Effective January 1, 2015, Applicable Large Employers (ALEs) will be required to offer their employees affordable health insurance coverage that meet a minimum value standard or be subject to an Employer Shared Responsibility Payment (additional tax or penalty).

ALEs are also required to report information about the health care coverage offered to their full-time employees, if any, to the IRS and the employee in the form of an information return (Form 1095-C). The 2015 1095-C (Employer Provided Health Insurance Offer and Coverage) is required to be sent to the IRS by February 28, 2016 (March 31, 2016 if filed electronically) and to the employees by January 31, 2016.

For more information on the employer reporting requirements see the following on the IRS website:

An applicable large employer is a business that employs 50 or more full-time equivalent employees. The definition of the total full-time equivalent employees is based on a calculation that includes both full-time and part-time employees. An employee is considered full-time if they average at least 30 hours per week or 130 hours per month.

See What is a Full-Time Equivalent Employee? to determine how to arrive at the total number of full-time equivalent employees for a business for Affordable Care Act purposes.

Tax Penalties for Large Employers
For 2015, the IRS has provided transitional relief on the definition of an applicable large employer for purposes of the employer shared responsibility payment (additional tax or penalty). Under this provision, a large employer is a business that employed 100 or more full-time equivalent employees during 2014 as long as they meet the following conditions:

  • The business did not reduce the size of its workforce or overall hours of service of its employees during the period of February 9 – December 31, 2014.
  • The business did not eliminate or materially reduce the health coverage offered as of February 9, 2014 during the period of February 9, 2014 – December 31, 2015.
  • The business employed, on average, between 50 and 100 full-time employees during 2014.

This transitional relief does not apply to the employer reporting requirements which defines a large business as 50 or more full-time equivalent employees.

A large employer will be subject to a penalty if any of its full-time employees receives a premium tax credit toward their State Exchange health insurance plan.

There are two situations in which a large employer will be subject to a penalty:

  • Employers Not Offering Health Insurance to Their Employees
    If an employer fails to offer health insurance coverage to full-time employees they will be subject to a penalty of $2,000 X (total number of full-time employees minus 30).
  • Employers Offering Health Insurance to Their Employees
    An employer will be penalized if they offer health insurance coverage that does not meet the Affordable Care Act’s affordability or minimum value standards.

The affordability standard is not met if an employee’s required contribution for self-only coverage exceeds 9.5% of their income.

The minimum value standard is not met if the employer’s plan pays less than 60% of covered expenses.

The penalty is $3,000 for each full-time employee who opts out of the employer’s coverage because of not meeting one of the above standards and enrolls in a State Exchange to obtain their health insurance and is eligible for a premium tax credit.

View the Penalties for Employers under the Affordable Care Act Flowchart.

See the IRS Questions and Answers on Employer Shared Responsibility Provisions on the IRS website for more information on the basics, which employers are subject to the provisions, full-time employees, making the payment, transitional relief for 2015, and additional information on the tax penalty for employers.

Other Employer Requirements under the Affordable Care Act
Read about other requirements for employers that offer health insurance coverage to their employees such as:

  • Free choice voucher for those employees who opt out of employer insurance and whose required contribution to the employer’s plan exceeds 8% of their income
  • Employers with more than 200 employees must automatically enroll new full-time employees

Small Business Health Care Tax Credit
Under the Affordable Care Act, qualified small employers may receive a credit to help offset the cost of the health insurance premiums they pay for their employees.

Details for Tax Years 2015 and later are as follows:

  • To be eligible for the credit, the employer must purchase their insurance through a Small Business Health Options Program (SHOP) Marketplace or qualify for an exception to this requirement.
  • Credit is calculated on a sliding scale for employers with no more than 25 full-time equivalent employees whose average annual salary is less than $50,000.
  • The credit is up to 50% of the employer’s contribution toward their employee’s health insurance premiums.
  • Full credit is available to employers with 10 or fewer employees whose average wages are less than $25,000.
  • The credit is available for two consecutive years.

For more detailed information, see the Small Business Health Care Tax Credit for Small Employers page on the IRS website.

Other Useful Links for More Information on the Affordable Care Act

Recent Tax Updates

IRS Use of Private Debt Collection Agencies
June 20, 2017

Expired Individual Federal Tax Provisions
May 10, 2017

Reminder to Watch for Phishing Email Schemes
March 22, 2017

IRS Identity Verification Letters
March 1, 2017

Additional Reminders for this Filing Season
February 16, 2017

Useful IRS Webpages
February 1, 2017

Reminder of the Federal Refund Delays and Expansion of Preparer Due Diligence Requirements
January 11, 2017

Expiring ITINs and Tax Scams Aimed at Tax Preparers
January 6, 2017

Additional Updates
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