The Affordable Care Act (ACA) became law in 2010. The following Affordable Care Act summary discusses some of changes made in the law that will affect you in your business in 2016.
Generally, the ACA requires employers who meet its Applicable Large Employer (ALE) criteria to provide certain employees with health insurance or else face significant penalties. You may be surprised to learn that you could be a 'large' company under this law's definition. If your company was not subject to the ACA for 2015, be aware that the thresholds have changed dramatically for 2016.
The rules are complex for determining if your company is an ALE under the law, and therefore subject to the 'employer mandate'. As part of this Affordable Care Act summary: for 2015, your company became an ALE if it employed an average of 100 or more full-time and full-time equivalent (FTE) employees. After 2015, an average of 50 or more FTEs and full-time employees will elevate you to the ALE status.
There are rules about how to calculate FTEs, who is a full-time employee, and how many days are in the work-year or work-month. It is important to note in this Affordable Care Act summary, that if you are near the 50 employee mark, you need careful record keeping and a clear understanding of the law for correct implementation. Your policies, procedures, calculation processes and systems need to be in place now and going forward, as long as the ACA law exists.
As part of our Affordable Care Act summary, here are a few examples:
Who is an employee for an ALE?
A full-time employee is an employee who:
- Has an average of at least 30 hours of service per week during the calendar month, OR
- Has at least 130 hours of service in a calendar month.
Outside contractors pose a potentially risky area for additional penalties. If upon audit, the IRS determines that outside contractors are in fact employees for employment tax purposes, this would throw them into the ACA insurance mandate arena, as well. As always, and as part of this Affordable Care Act summary, careful consideration needs to be given to the classification as employee versus contractor status.
Who is NOT an FTE?
Individuals who are excluded from the calculation of the number of ALE employees include:
- Sole proprietors
- Partners in a partnership
- 2% (or more) S-corporation shareholders
- Leased employees
- Temporary employees invoiced through an agency
- Independent contractors
- Real estate agents
- Direct sellers
However, to the extent that a sole proprietor, a partner or shareholder provides service as an employee to your company, they will be considered an employee with respect to their hours of service as an employee.
What are the penalties for non-compliance? Did those change from 2015?
For 2015, ALEs must have offered at least 70% of their full-time employees and their dependents (up to age 26) health insurance that offered minimum essential coverage (as defined by the ACA). After 2015, ALEs must offer compliant insurance to 95% of employees and dependents.
Failure to comply with this employer mandate will result in tax penalties. The annual penalty calculation amounts to about $2,000 for each non-compliance, minus 30 full-time employees. A different penalty applies for insurance that is offered but that fails to meet affordability and minimum value tests. If an employee obtains a marketplace subsidy, look for another penalty.
What are the reporting requirements for the ACA?
ALEs must file an annual information return with the IRS that reports the terms and conditions of health care coverage. If you are an ALE, you must also report to your employees. Generally, all full-time employees must receive notice of what you have provided to the IRS. And yes, failure to do this will result in yet another penalty.
Beginning in 2016, these reporting requirements are referred to as Section 6055 and Section 6056 reporting. Form 1095-B or 1095-C will be prepared and submitted to the IRS by the end of February (or March 31 if filed electronically). The first individual statement which reports information for the 2015 calendar year was due by January 31, 2016. (This Affordable Care Act summary has been prepared after this deadline.)
What if you are an employer with 50 or fewer employees?
You have the option to purchase health insurance through the Small Business Health Options Program (SHOP). This may provide a less expensive health insurance option than a different benefits program.
How does the SHOP option work?
If you are a small employer who wants to provide health insurance or dental insurance coverage to your employees, the Small Business Health Options Program (SHOP) might be an option for you. You can start offering this coverage at any time during the year. You must have 50 or fewer full-time equivalent employees (FTEs) to qualify for this program.
The SHOP Marketplace offers health insurance plans from private insurance companies. Beginning in 2016, the Marketplace allows you to offer your employees one plan, or a selection of plans to choose from. Also beginning in 2016, there can be any combination of health or dental plans utilized as choices for your employees. And you, the employer, can choose how much you will pay toward your employees' premiums and other employer related options.
I have fewer than 25 employees. What options do I have?
In addition to the SHOP Marketplace, you are eligible for a tax credit of up to 50% of your contribution toward your employees' premium costs. You don't have to offer insurance coverage to your part time workers (those working fewer than 30 hours a week) nor to dependents of your full-time employees to qualify for this tax credit. And beginning in 2016, you can renew your SHOP Marketplace coverage online, without having to fill out a new application.
To qualify for this Small Business Health Care Tax Credit, all of the following must apply:
- You have fewer than 25 FTE employees.
- Your average employee salary is about $50,000 per year or less.
- You pay at least 50% of your FTEs' premium costs.
- You offer coverage to your FTEs through the SHOP Marketplace.
Given the complexity of the ACA, we hope that this Affordable Care Act summary has highlighted the changes made in 2016 and the need for health insurance planning for your business. Contact your advisor at Smolin and let us help you navigate through the maze known as Obamacare.