By: DawnMarie Schulz, Esq.
Also published by the Bucks County Economic Development Corporation at: http://www.bcedc.com/images/newsletters/2013_october.pdf
Many readers may have heard of the “pay-or-play” penalty, also known as the Employer Shared Responsibility Payment, under the Patient Protection and Affordable Care Act (“Affordable Care Act”). However, according to the U.S. Small Business Administration, only 4% of U.S. firms qualify as a large employer subject to the penalty. For those readers who may not be familiar, the “pay-or-play” provision, which has been delayed until 2015, requires employers with 50 or more Full-Time Equivalent employees to provide health coverage that meets minimum essential coverage and affordability standards to at least 95% of their full-time employees (and their dependents) or face a penalty if their employee obtains a federal tax credit for health care purchased through the federal or state Health Insurance Marketplace. Despite much focus on “pay-or-play,” it doesn’t apply to 96% of U.S. firms. This article addresses key features of the Affordable Care Act that are relevant to small employers and the self-employed.
The impact of the Affordable Care Act on businesses and non-profit entities varies depending upon the number of employees. Generally, with respect to employer-sponsored health coverage, employers fall into 4 categories: 1) large employers, defined as 50 or more Full-Time Equivalent (“FTE”) employees; 2) small employers with 49 or fewer FTE employees; 3) small employers with 24 or fewer FTE employees; or 4) self-employed individuals, including businesses that employ multiple members of the same family unit, such as a husband and wife. A Full-Time Equivalent employee is a measuring unit where one FTE represents the number of hours equal to a full-time position, regardless of the number of employees who perform the hours. For example, two half-time employees equal one FTE employee.
Small Employers with 49 or fewer FTE Employees
Beginning October 1, 2013, employers with 49 or fewer FTE employees are permitted to purchase health coverage through the Small Business Health Options Program (“SHOP”) for coverage that begins January 1, 2014. Through the SHOP, employers will be able to see all health coverage plans available, review and select a plan that meets the needs of the employer, and determine the amount of the employer contribution toward coverage. Employers can continue to leverage the experience and expertise of an insurance broker in setting up a plan, without paying more for using a broker in the process. The SHOP is intended to pool risk to assist in reducing overall premium costs, as well as, a streamline enrollment for employees. Additionally, all plans offered through the SHOP are required to meet the minimum essential coverage standards. More information about the SHOP can be found at www.healthcare.gov/marketplace/shop.
Small Employers with 24 or fewer FTE Employees
In addition to being able to purchase health coverage through the SHOP, employers with 24 or fewer FTE employees may qualify for a Health Care Tax Credit if they pay 50% or more of the cost of employee-only health coverage and the average annual wages of their employees do not exceed $50,000. For tax years 2010 – 2013, businesses may obtain a tax credit of up to 35% (up to 25% for tax-exempt entities) of the employer’s contributions toward health coverage. Employers who qualify, but did not file, for the credit are permitted to file amended returns for prior tax years that have not closed. Employer contributions that exceed the tax credit can be taken as a deduction.
Beginning in 2014, the tax credit increases; employers may obtain a tax credit of up to 50% (35% for tax-exempt entities) of employer contributions toward health coverage. Eligible employers may obtain the tax credit for two consecutive taxable years. Businesses may carry forward credits, and tax-exempt entities may be able to obtain a refund so long as the refund does not exceed their income tax withholding and Medicare tax liability. In order to be eligible for the tax credit in 2014 and beyond, small employers, in addition to meeting the employer size and contribution requirements, must offer their health coverage through the SHOP.
To calculate the tax credit, employers are required to use Internal Revenue Service (“IRS”) Form 8941, Credit for Small Employer Health Insurance Premiums. Businesses can include the amount as part of the general business credit on their income tax return. Tax-exempt entities are required to file IRS Form 990-T in order to obtain the credit. Forms are available at www.irs.gov.
Effective January 1, 2014, all individuals, including self-employed individuals, must have health insurance that meets the minimum essential coverage standards, qualify for one of the regulatory exemptions, or be subject to penalty. Beginning October 1, 2013, individuals may use the Health Insurance Marketplaces to shop for and enroll in health coverage that would begin January 1, 2014. The Health Insurance Marketplaces, which are called “exchanges” in the Affordable Care Act, can be run by either the state or federal government. Individuals interested in exploring health coverage through the Health Insurance Marketplaces can go to www.healthcare.gov/marketplace/individual.
Other Affordable Care Act Provisions
All employers, regardless of the number of FTE employees, should be aware of the following Affordable Care Act provisions.
- Beginning October 1, 2013, employers subject to the Fair Labor Standards Act (“FLSA”) are required to provide all new employees with a notice of the Health Insurance Marketplace upon date of hire. Notice was required to be provided to all existing employees before October 1, 2013; however, the U.S. Department of Labor has stated no penalty will be assessed for failure to distribute the notice by the October 1st deadline.
- Beginning January 1, 2014, plans cannot impose a waiting period of more than 90 days for coverage of an otherwise eligible employee.
The Affordable Care Act provisions can be complex, and the law can be subject to substantial changes on short notice. For questions regarding the Health Insurance Marketplace, the tax credit or any other assistance with the Affordable Care Act, please contact the attorneys in the Employment & Labor Law section of Curtin & Heefner LLP.