The Affordable Care Act (ACA) became law in 2010. Each year, existing aspects of the law have changed via presidential executive orders, successful constitutional challenges of the law and with built-in indexing changes. These changes have forced Americans to keep up to date on the latest information about the health insurance mandate, also known as Obamacare. The following Affordable Care Act summary discusses some of changes made that will affect you in 2016.
If you are an employer, you may be subject to the ACA changes for 2016.
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 month. As part of this Affordable Care Act summary, it is important to note 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.
Here are a few examples:
- 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, or 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.
There must be reporting requirements. What are they?
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.
If you are an employer with 50 or fewer employees, what are you to do?
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.
Did the individual shared-responsibility provision (ACA penalty) change in 2016?
In 2016, the Section 5000A penalty will be fully phased in. For tax year 2015, the ACA penalty is 2% of your total household adjusted gross income, or $325 per adult and $162.50 per child, to a maximum of $975. For tax year 2016, the penalty will rise to 2.5% of your total household adjusted gross income, or $695 per adult and $347.50 per child, to a maximum of $2,085.
Section 5000A imposes a penalty on individuals who do not have health coverage for any month of the year and are not exempt for that month. This penalty is referred to as the 'individual shared-responsibility provision' or ISRP. The maximum penalty amount is capped at the national average bronze premium amount.
Exemptions to the penalty are available based upon a number of circumstances. One exemption to this penalty is affordability. This exemption is met if the cost of coverage exceeds a specified percentage of household income. The percentage is adjusted annually. It was 8.05% for 2015 and is 8.13% for 2016.
Did the premium tax credit (PTC) change for 2016?
The premium tax credit or PTC is the refundable tax credit that can be paid to qualifying taxpayers in advance, beginning in 2014. It is intended to make health insurance affordable for individuals who do not have coverage from other sources, such as an employer. The PTC is computed using the cost of the second lowest cost silver plan. Most individuals will claim the PTC in advance through reduced monthly insurance premiums. The amount is then reconciled with the annual filing of the IRS form 1040.
To qualify for the PTC, a taxpayer must meet the following:
- Purchase health insurance coverage through a health insurance marketplace (exchange).
- Have household income of at least 100% of the federal poverty line (and not more than 400% of that poverty line).
- Not have minimum essential coverage through an employer.
- Not be eligible for Medicare or Medicaid.
- Not be a dependent.
There are shared policy allocations which may be needed in the case of marriage or divorce; and going into or out of the federal poverty level requires further considerations. Self-employed individuals face a circular calculation as the deduction is based upon your AGI which is calculated with the insurance deduction, itself. And there are additional rules not covered in this Affordable Care Act summary.
Given the complexity of the ACA, we hope that this Affordable Care Act summary has highlighted the necessity of planning for you and your business.