The Patient Protection and Affordable Care Act (ACA) requires each large employer to offer health care programs that are deemed to be “affordable” and provide minimum health care benefits to 70% of its full-time employees in 2015 and 95% of its full-time employees in 2016. Large employers who do not offer these benefits could be subject to significant excise taxes.
In the article in May’s issue, I discussed how to determine if you were a large employer who is subject to ACA. Assume that your company qualifies as a large employer. What do you do now? You must determine whether you will comply by offering 70% of your employees health coverage in 2015 that satisfies ACA’s standards (play) or pay the non-deductible federal excise taxes (pay).
Health care programs only need to be offered to a full-time employee, defined as a person who is regularly scheduled for 30 hours a week or 130 hours per month; therefore, part-time employees, who are considered in determining whether you are a large employer, are not considered for purposes of the penalty provisions. A plan that plays meets all of the following requirements:
- The health care program has to be offered to at least 70% of full time employees in 2015.
- If employees contribute to health care coverage, the amount charged must be affordable. Affordable coverage cannot exceed 9.5% of an employee’s household income for a year; the IRS will accept the employee’s W-2 wages (box 1) or rate of pay (hourly rate of pay multiplied by 130, or monthly salary) or a fixed amount based on federal poverty guidelines as evidence of household income for this purpose.
- The health coverage must be offered to the employee and children (not spouse) and must contain “minimum essential coverage,” which includes hospitalization, physician office visits, and prescription drugs. It does not include dental, vision, disability, or long-term care coverage.
If you don’t play, you will pay the larger of the two non-deductible excise taxes described below.
An employer not offering coverage to 70% of its full-time employees in 2015 pays a monthly penalty of $166.67 multiplied by the number of its full-time employees for that month (reduced by 30) if one employee purchases health care through the marketplace and receives a subsidy or tax credit for that month.
An employer offering coverage, which is deemed not affordable or not providing minimum essential coverage, pays a $250 monthly penalty for each full-time employee who purchases health benefits through a government-mandated marketplace and receives a federal subsidy or tax credit for that month.
What should an employer do?
The ACA excise tax is one part of the decision whether to offer health benefits – others include your ability to hire and retain a workforce and the effect on employee morale. You can determine whether your current health benefits program will satisfy the minimum essential coverage conditions of ACA and whether the premiums, for which you are currently charging your employees for participation are affordable, as well as a worst-case estimate of how many of your employees might be eligible for a subsidy or tax credit. Once you have made those determinations, you can consider whether the program needs adjustment – and the relative costs to you and the employees of making adjustments – and weigh those costs against the potential excise taxes or operational changes.
About the author: Ted Ginsburg is principal at Skoda Minotti, a CPA, business, and financial advisory firm. For more information about how ACA impacts your company, contact him at 440.449.6800 or firstname.lastname@example.org.