The Affordable Care Act (ACA) may be controversial but it is unlikely to be fully repealed anytime soon. It continues to provide specialty fabrics professionals and their businesses with insurance options, cost assistance and increased buying power through the government-sponsored marketplace—and a considerable amount of paperwork and confusion. Now is the time to begin preparing for its continuing provisions for businesses.
The ACA today
For businesses, the first thing to consider about the ACA is that many of its taxes and tax credits are based not solely on the number of full-time employees, but rather on the number of full-time equivalent employees (FTE) and their average annual wages. In simple terms, FTE or “full-time equivalent” equals the total number of full-time employees plus the combined number of part-time employee hours divided by 30. (Seasonal employees, contractors and business owners don’t count toward the total.)
Other key provisions:
- Small businesses with fewer than 25 FTEs, paying average annual wages below $50,000, qualify for tax credits to help pay employee health care premiums. Employers with 10 or fewer full-time employees, paying annual average wages of $25,000 or less, qualify for the maximum credit. Today, the maximum tax credit has increased to 50 percent of premium expenses, although all coverage must be purchased from a state health insurance exchange.
- Form 8941, Credit for Small Employer Health Insurance Premiums, must be filed to claim the tax credit: tax credits can go all the way back to 2010, since the credit is retroactive.
- Every business with more than 100 FTEs must provide health coverage to at least 70 percent of full-time employees starting in 2015, and to 95 percent of full-time employees in 2016. Also starting in 2016, employers with 50-99 FTEs will have to insure their entire full-time workforce.
- Any business with 50 or more FTEs is required to file an annual information return, whatever health insurance it offers to employees.
- The Small Business Health Options Program, or SHOP, was created as part of each state’s Health Insurance Marketplace. It’s where small businesses with 50 or fewer FTEs can shop for group health plans. After Nov. 15, 2015, businesses with 100 FTEs or fewer will be able to use the SHOP.
- Those who are self-employed (with no employees) can purchase health coverage through the Health Insurance Marketplace for individuals, but not through SHOP. Paper applications may be used instead of the Internet if preferred.
- All businesses with more than 50 FTEs are required to inform employees about their state’s Health Insurance Marketplace/Exchange.
- Effective for calendar year 2015, any business providing self-insured health coverage to employees must file an annual return to report certain information for each employee covered. (This rule was optional
- Retroactive to Jan. 1, 2014, and throughout 2015, 2 percent shareholders in a business operating
as an S corporation can receive reimbursement from the S corporation for their individual health insurance premiums. An S corporation can escape the excise tax penalty by correctly including the health insurance premiums on the 2
percent shareholder’s W-2. The 2 percent shareholder must report the income as wages, but will be allowed to take a self-employed health insurance deduction.
The Employee Mandate’s “penalty fee,” officially called the “Employer Shared Responsibility Fee,” penalizes businesses that don’t cover their full-time workers at $2,000 per employee.
If at least one full-time employee receives a premium tax credit because coverage is unaffordable or does not cover 60 percent of total costs, the employer will be required to pay the lesser of $3,000 for each of those employees receiving a credit, or $2,000 for each of their full-time employees. The first 30 workers are excluded from being counted toward the fee.
A business with profits of more than $250,000 faces a .9 percent increase (from 2.9 percent to 3.8 percent) on the current Medicare Part A tax, which is paid both by employees and employers who earn more than a certain amount.
This tax is split between employer and employee (a .45 percent increase each). Small businesses with earnings less than $250,000 are exempt. An employee making less than $200,000 as an individual, or $250,000 as a family, is also exempt.
Beginning in 2016, employers with more than 50 FTEs will be required to report on health coverage offered to employees. Every business owner should begin tracking employees’ hours, absences and how much is spent on health insurance.
By Mark E. Battersby, who writes extensively on business, financial and tax-related topics.