For many companies, the provisions of the Affordable Care Act (ACA) have phased in specific tax credits and potential penalties. Individuals and employers all have criteria to meet under the act, which has been phased in over the last few years. By working with your tax professional or accountant, such as EB Tax Consultants in Brooklyn, NY, they can assist you in determining your tax liability based on the ACA.
Starting in 2014, the premium tax credit provides individual taxpayers assistance in paying their health insurance premiums. However, the credit is only available for those who use one of the Affordable Insurance Exchange or marketplaces to choose and purchase their policy. Even those with little or no tax liability can still benefit, due in part to this being a refundable tax credit. In addition, an individual can direct that the credit be paid to the insurance company to supplement their monthly premiums.
However, if your income exceeds what was originally determined in your marketplace application, you may have to refund some of the credit when filing your latest return. Therefore, it is important to work with your tax professional to determine if you owe a refund to the government or not.
Companies and small businesses need to determine their status under the Affordable Care Act. Businesses with over 50 employees would be classified as applicable large employers (ALE). Full-time is defined as 30 hours a week. Yet, this is not just full-time employees, but also includes part-time employees as well. Two part-time employees can be combined to equal one full-time employee, thus counting toward your ALE status.
If your company has 50 employees along with holiday or seasonal employees, then these additional workers may also count toward your total number of employees. Within the calendar year, the 50 employees need to have been employed over 120 days. For most companies, your ALE status will be determined by the number of qualifying employees you employed throughout the previous year.
Qualifying ALEs are required to provide health insurance options to employees, along with any qualifying dependents. The ACA defines the minimum standards for options. To avoid a penalty, a minimum of 95% of your employees must have access to your coverage.
An employer has three safe harbors under the ACA. Complying with a minimum of one of these harbors, allows an employer to meet their shared responsibility requirement. The first is the Form W-2, which is based on the Box 1 wages. The second safe harbor is the rate-of-pay, which must be based on your employee’s wages at the start of their health insurance’s coverage period. The final safe harbor is the federal poverty line, which caps the employee’s health insurance contribution at 9.5% level of the federal poverty line during the designated year.
It is important to apply the safe harbor consistently across your workforce. Providing more than one health insurance option means the affordability component only applies to the low cost choice.
There have been changes made to what qualifies for reimbursement from the Flexible Spending Arrangement (FSA). While these funds can reimburse a variety of medically related out-of-pocket expenses, over-the-counter medicine no longer qualifies for reimbursement without a prescription. However, most other health care expenses are still eligible for reimbursement. Using one of these accounts provided through your employer, it might be possible to carryover some funds to the new year.
For the individual tax payer, there is the ability to determine if they are due a credit under the Act. However, if you do not carry health insurance for the entire year, there may be a penalty owed with your filing, which is determined by the number of months that you were without coverage.
As both an individual and an employer, it is critical to have the minimum coverage insurance as required by the ACA. Those who do not meet the minimum coverage requirements could be liable for a tax penalty when filing your personal or corporate return.
Employers need to keep a rule of thumb regarding the health insurance offered to their employees, as it needs to cover at least 60% of the total cost of benefits based on the plan’s provided services. Again, there are potential penalties for businesses who choose not to provide health insurance or whose offerings do not meet the minimum requirements.
Click on the link below to contact one of the tax professionals at EB Tax Consultants in Brooklyn, NY, to determine the options available regarding the ACA and how to limit any potential liabilities for yourself or your company.
ERNIE BUSTAMANTE