New Business Tax Provisions Under the Affordable Care Act
At RSJ, we pride ourselves on staying on top of newly implemented regulations and requirements. As part of its primary purpose to facilitate healthcare reform, the Affordable Care Act (ACA) includes key tax provisions that affect businesses, and so we felt it is important to share the following reminders with our clients and colleagues.
While many businesses and employers waited to fully implement these provisions until the Supreme Court determined the fate of the health care reform law, the time has come for businesses to prepare to comply with the rules under ACA. Below are some reminders of the tax provisions relating to businesses. Note that the starting date of the reporting requirements, as well as the employer mandate itself, was pushed back from January 1, 2014, to January 1, 2015.
Shared responsibility payment imposed on certain larger employers
For purposes of the employer shared responsibility payment and reporting requirement, an applicable large employer is an employer that on average employed 100 or more full-time equivalent employees for 2015 and 50 for 2016. The employer mandate specifies that an assessable payment will be imposed on an applicable large employer that:
1. Fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan; and
2. The employer-sponsored plan is unaffordable relative to an employee’s household income
New reporting requirements
The Affordable Care Act also requires applicable large employers to file information returns with the IRS and provide statements to their full-time employees about the health insurance coverage the employee offered. In general, each applicable large employer may satisfy the information reporting requirement by filing Forms 1094-C and 1095-C beginning in 2016 to report information about its offers of health coverage to its full-time employees for calendar year 2015.
Health reimbursement arrangements (HRAs)
The IRS has provided guidance on the effect the provisions of the ACA have on health reimbursement arrangements where employers reimburse employees for some or all premium expenses incurred. In general, account-based health reimbursement plans that cover more than one employee are considered “group health plans” and are subject to requirements of the ACA. The penalty for maintaining a non-qualifying health reimbursement arrangement is $100 per day. Health reimbursement transition relief is available for small employers (less than 50 full- time equivalent employees) and provides that no penalty will be assessed through June 30, 2015. It is not certain whether the IRS will extend this date to allow additional time for compliance. We recommend addressing any issues as soon as possible.
Employers who wish to help their employees purchase health insurance can either:
1. Establish an ACA- compliant plan; or
2. Increase taxable salaries to help employees purchase individual coverage
Small employer health insurance credit
An enhanced version of the small-employer healthcare credit took effect as of January 1, 2014. A small employer may be eligible for a business credit of up to 50% of premium amounts paid as long as:
1. It has 25 or fewer full-time equivalent employees
2. The average annual wages of these employees are between $25,000-$50,000
3. Coverage is purchased from the SHOP exchange (this is the small business section of the “ObamaCare” health insurance exchange)
Note that excluded employees are sole proprietors, partners in partnerships, shareholders owning more than 2% of an S corporation, and family members of these owners and partners.
We can help
The majority of businesses fall below the threshold that makes them subject to the Employer Shared Responsibility provisions. However, for some, 2015 is a significant year in the implementation of the Affordable Care Act. If you have additional questions related to identifying full-time employees, whether or not you are eligible for a credit, or any other details, please call our office at (818) 461-0600. We will happily assist you.