Understanding Your Responsibilities Under the Affordable Care Act

When the Affordable Care Act (ACA) was enacted, there were also various tax provisions that went into effect. Various groups of taxpayers, including individuals, employers and other organizations, all have specific aspects of the act that apply to them. By working with your tax professional or accountant, you can determine how this act impacts your tax liability throughout the year. For employers, there is more that they have to handle as part of their responsibilities. Below is some of the information about how the ACA affects small businesses.

Premium Tax Credit

Starting in 2014, families and individuals could take a premium tax credit to assist them in paying for their health insurance, as long as it was purchased through one of the Affordable Insurance Exchange or marketplace. This credit is refundable, so even those with little or no tax liability can still benefit. In addition, the credit can be paid in advance to the insurance company to cover monthly premiums. These credits are not available to employees who have an employer that offers insurance options. 

Additionally, employers need to keep in mind that they will have to let their employees know if they will not be offering health insurance, so they can take advantage of the premium credit.

Keep in mind, however, that if an employee’s income exceeds what they have reported when applying for their insurance through the marketplace, they may have to refund some of the credit when filing their latest return.

ACA for the Employer

Companies and small businesses need to be sure that they have accurately determined their status under the Affordable Care Act. Businesses with over 50 employees may be considered applicable large employers (ALE). Yet, this is not just full-time employees, but also includes part-time employees as well. Full-time is defined as 30 hours a week. If you have two part-time employees who work 15 hours each week, they would combine to count as one full-time employee.

If your company has 50 employees and then adds seasonal workers, then these additional workers will also factor into your employee total. However, you need to note that your 50 employees need to have been employed for more than 120 days within the calendar year. For most companies, your ALE status will be determined by the number of qualifying employees you had during the previous year.

For those that qualify as ALE, then you must provide health insurance options to your employees, as well as any qualifying dependents. These options must meet the minimum standard as defined by the ACA. Your company can incur a penalty if less than 95% of the employees are not offered coverage.

Here are three safe harbors that you need to be aware of as an employer. By complying with one or more of these harbors, then you are meeting what is defined as your shared responsibility as an employer.

• Form W-2 safe harbor, based on the Box 1 wages
• Rate-of-pay safe harbor, which is based on your employee’s wages at the beginning of the coverage period for the health insurance.
• Federal poverty line, where the employee’s health insurance contribution does not exceed the 9.5% level of the federal poverty line during a particular year.

It is important to remember that whatever safe harbor you choose to apply; it must be done consistently across your workforce. Providing more than one health insurance option also means that the affordability component will just apply to the lowest cost choice.

Employers, who have less than 50 employees or are right on the cusp, will find that they can also hire veterans with their own insurance benefits and that these veterans will not count toward their 50 employee limit.

Finally, as both an individual and an employer, it is important to remember that you need to have the minimum coverage required by the act in terms of insurance. You will be potentially liable for a penalty if this is not in place for the current tax year. Additionally, there may be tax penalties for the months where you did not have health coverage throughout the year. Employers need to keep a rule of thumb regarding the health insurance that they offer their employees, as it needs to cover at least 60% of the total cost of benefits for the services provided by the plan.

As you can see, the Affordable Care Act has made some significant changes in how healthcare benefits are being handled in small businesses throughout the country. Therefore, it is important to work with your accountant to determine if you have any potential liabilities as a result of the ACA.