Most major provisions of the Patient Protection and Affordable Care Act (ACA) became effective Jan. 1, 2014, after several years of phase-ins and one major ruling by the United States Supreme Court. The result is a relatively complex system of rules and regulations for employers, whether they choose to provide health care benefits to their workers or not. While the ACA does not require employers to offer health insurance to workers, employers may be subject to hefty penalties if their full-time workers qualify for a tax credit through the Health Care Insurance Marketplace, healthcare.gov. The ACA has the potential to be particularly burdensome to smaller employers, so the law includes some exceptions that are designed to provide relief.
The ACA defines small employers as those with fewer than 50 full time employees (FTEs), with some provisions limiting it further, to a maximum of 25 FTEs. Full time employees are those individuals that work 30 or more hours each week, and two part time employees generally are considered the equivalent of one FTE. The Small Business Health Options Program (SHOP) was created by the ACA and is available to employers of fewer than 50 FTEs through the health insurance marketplace. SHOP aims to reduce costs for small employers by pooling risk and keeping plan administration fees to a minimum. Employers using SHOP will benefit from increased purchasing power and access to higher quality insurance plans for their employees. Employer eligibility for using SHOP can be reviewed by using the calculator provided to employers at https://www.healthcare.gov/small-businesses/provide-shop-coverage/fte-calculator/.
Small employers who provide health care benefits to workers through the SHOP may also be eligible to receive the Small Business Health Care Tax Credit. This credit is available for employers with fewer than 25 FTEs who also cover at least 50 percent of their FTEs' premium costs and whose employees' average annual income is less than $50,000. Beginning in tax year 2014, the Small Business Health Care Tax Credit increased to 50 percent of premiums paid by small employers and 35 percent of premiums paid by small tax-exempt employers. Eligible employers can use the credit for two consecutive tax years, and those who did not owe tax can carry the credit back or forward to other tax years. Additionally, a business expense deduction is also available for premiums paid in excess of the credit. Small tax-exempt employers can still benefit from this credit as well, because it is refundable. This means that small tax-exempt employers can receive the credit as a refund, even with no taxable income. The credit simply can not exceed the employer's income tax withholding and Medicare tax liability.
Additional relief for small employers is currently being debated in Congress. H.R. 2911, the Small Business Healthcare Relief Act (SBHRA), was introduced June 25, 2015. This proposed legislation would allow employers of fewer than 50 FTEs to use pre-tax dollars to assist employees with health care premiums. The SBHRA also would establish stand-alone health reimbursement arrangements specifically for small employers, which could be used to pay for qualified health care expenses on a pre-tax basis or to offer tax-advantaged resources for employees to purchase health care insurance on the open market.
Employers of every size should consult with professionals to ensure compliance with current legislation such as the ACA. Wellspring Insurance Agency is an employer benefits consulting firm with more than 20 years of experience in the industry. Wellspring's team consists of experts in every arena related to insurance benefits, such as the ACA and ERISA. They offer long-term business solutions for their clients through extensive research and planning. Contact Wellspring today at www.wellspringagency.com to create a customized employee benefits strategy to meet every business goal.