The Affordable Care Act has ushered in many changes to our tax and health insurance systems since its passage in 2010. The impact of this legislation was initially felt by individuals with the introduction of two new personal income taxes: .9 percent tax on earned income (i.e. W-2 and self-employment income) and a 3.8 percent tax on one's net investment income, both above certain income thresholds.
Last year the ACA placed additional requirements on individual taxpayers. Beginning in January 2014, individuals were mandated to have health insurance coverage through either employer sponsored plans, federal/state exchanges or individual policies, all of which had to meet minimal essential coverage standards. If individuals did not have such coverage and did not qualify for an exemption, they would be required to pay a penalty, known as the shared responsibility payment.
For 2014, the penalty was the greater of 1 percent of the taxpayer's income above a certain threshold or $95. These amounts are scheduled to increase to 2 percent and $325 in 2015, and 2.5 percent and $695 in 2016. However, the ACA did place a cap on this penalty based on the national average premium of a defined coverage plan.
To help make coverage more affordable for certain taxpayers, the ACA created a premium tax credit for eligible individuals and families who purchase coverage through the federal/state exchanges and whose income is between 100 percent and 400 percent of the federal poverty line.
In 2015, the employer mandates of the ACA kick in. This provision requires all "applicable large employers" (ALEs) with 100 or more full-time equivalent employees to offer "affordable" and "minimal value" coverage to all full-time employees or pay a significant penalty. In 2016, employers with 50 or more full-time equivalent employees will be required to provide such coverage.
The design of the plan determines whether or not the plan meets "minimum value" standards of the ACA. Typically a "Bronze Level" plan will meet these requirements. Whether or not your plan meets these standards is best determined by your health plan broker or carrier.
The plan will be deemed to be "affordable" if the employee does not have to pay more than 9.5 percent of their household income towards their portion of the premium. Since an employee's household income is not known by most employers, three safe-harbor tests exist to meet the affordability standard: (1) W-2 safe-harbor: the employee pays less than 9.5 percent of their wages towards the premium for a single health plan. (2) Rate of Pay safe-harbor: the employee pays less than 9.5 percent of their monthly pay towards the premium for a single health plan. (3) Federal Poverty Level safe-harbor: the employee pays less than 9.5 percent of the federal poverty level for the year towards the premium for a single health plan.
The penalties can be severe if an ALE does not meet the employer mandates of the ACA. In 2015, if an ALE does not offer coverage to at least 70 percent (95 percent after 2015) of its full-time employees or does not offer "affordable" or "minimum value" coverage to any of its full-time employees, the ALE would be subject to one of two penalties.
The "A" penalty would apply if an ALE does not provide coverage to 70 percent of its full-time employees. The penalty would be $2,000 per full-time employee minus 80 exempt employees (30 after 2015). For example, if an ALE with 500 full-time employees offers coverage to only 300 of its full-time employees (60 percent), it would be subject to a $840,000 penalty in 2015 (500 employees 80 exempt employees multiplied by $2,000) and a $940,000 penalty if it were to happen in 2016 (500 employees 30 exempt employees multiplied by $2,000).
The "B" penalty would apply if the ALE does not provide "affordable" or "minimum value" coverage and one of its employees purchased coverage through the exchange and received a premium tax credit. In this case the ALE would be assessed the lesser of the "A" penalty or $3,000 per employee receiving the premium tax credit.
In 2015, these penalties do not apply to employers with less than 100 full-time equivalent employees. However, this number drops to 50 full-time equivalents in 2016. In addition, to avoid the "A" penalty in 2015, an ALE must offer coverage to at least 70 percent of its full-time employees. Beginning in 2016, this number increases to 95 percent.
To help determine whether the employer mandate penalties apply, new reporting requirements have been instituted beginning in 2015 for all employers with 50 or more full-time equivalent employees. Those between 50-99 employees get a reprieve from the employer mandate penalties, but not the reporting requirements.
These employers will now be required to file Form 1095-C and Form 1094-C. The 1095-C is the employer-provided health insurance offer and coverage which identifies the person as enrolled in the health plan (think W-2). This must be provided to each policy holder by Jan. 31 of the year following the year of coverage. Form 1094-C (think W-3) is the transmittal that must be filed with the IRS by February 28th (March 31 if filed electronically and required if there are more than 250 forms).
To protect your business from the employer mandated penalties you need to work with either your health care broker or carrier or your payroll company, to ensure that you are offering a health plan to nearly all of your full-time employees that meet the "minimum value" and "affordability" requirements.
These parties should also help you navigate the many intricacies of the employer mandate when it comes to determining if a company is an ALE as it relates to control group entities and in calculating the number of full-time equivalent employees when you have part-time and seasonal employees, just to name a few. If you have not had a detailed discussion with any of these parties as it relates to the ACA, now is the time to do so.
-----
Kevin J. McPherson, CPA is a Principal with Mengel, Metzger, Barr & Co. LLP. He may be reached at KMcpherson@mmb-co.com.
Published: Mon, Dec 14, 2015
