Are you a small business owner with employees or you are looking to hire and wondering about your obligations under the Affordable Care Act (a.k.a. “Obamacare”)? While there is a lot of fine print, understanding some basics will help to ensure compliance under the law and give you strategy to plan for the future of your business. Whether you are already a business owner with a handful of employees or you are looking to expand your operation, here’s how the ACA may impact your bottom line:
Do I need to pay for my employees’ healthcare insurance?
Any business with more than 100 full-time employees will need to insure 95% of their employees by 2016. Small businesses with 50-99 full-time employees will need to ensure their workers by 2016. The employee mandate does not apply to employers who have 49 or fewer full-time employees.
What if I have fewer than 49 employees, but I use independent contractors?
Small businesses with fewer than 50 full-time employees are not mandated to provide insurance under the ACA. However, be aware than misclassified employees can cost you. If you are using a staff of independent contractors, be certain that your classification of your workers actually holds up. In short, are your independent contractors really independent contractors? The IRS will evaluate how much control you have over the method, manner, and means of work.
So, I have 50 or more employees, what now?
If you fall under the ACA mandate, it is important to know how coverage works so that you can explore your options and avoid penalties. Know that the law is complex and that there are many nuances to the ACA.
Do I need to provide coverage to dependents?
If your business is required to provide coverage then you must provide healthcare insurance to substantially all of your employees and their dependents, up to age 26. Spouses are not considered dependents under the ACA.
Does the ACA hurt small businesses?
While the employer mandate does force coverage for medium-sized businesses, the ACA provides support for small businesses that want to provide coverage for their employees. Historically, smaller companies were forced to pay higher premiums for the same benefits as large companies. Now small businesses can get tax credits to better provide for their employees.
What are the employer penalties for failing to provide coverage?
Insurance premiums are expensive and if you are business-minded, you’ve probably already thought about the cost-benefit of simply paying penalties. Be wary that penalties for failing to comply with market form restrictions are $100 per employee per day. This would put most companies out of business. This adds up to a whopping $36,500 per employee, per year. The IRS will even assess the penalty against employers who simply offer plans that reimburse for premiums on individual policies.
Can I simply pay premiums on individual policies?
Many small business owners have opted to simply compensate employees for their premiums through a payment arrangement rather than invest in a full-fledged company health insurance plan. In general, these plans do not meet ACA requirements according to the IRS Notice 2015-17. The notice states that an employer payment arrangement is considered a group health plan and is subject to the $100 per day penalty.
What is the Employer Shared Responsibility Payment?
This is the employer mandate fee per month, per employee for employers with more than 50 full-time employees who don’t offer coverage to the required amount. The fee is generally $2,000 per employee, per year, with a fraction of the fee due every month. The first 30 full-time employees are exempt to help lower fees for smaller businesses. This fee is not tax deductible, unlike employer contributions that are made to premiums.
What are my reporting duties if I am covered by the employer mandate?
If you have 50 or more full-time employees, you will need to comply with the ACA information reporting regulations. New information reporting rules have been implemented and have become effective in 2016, however the IRS has extended time for employers and insurance providers to meet requirements. Under transition relief issued by the IRS, reports must be filed with the IRS by May 31, 2016 via paper and June 30, 2016 for electronic filers.
Want to make sure your plan complies with the law?
To avoid penalties and fees, you’ll want to make sure that your plan is in compliance with the ACA. Use the Small Business Health Options Program (SHOP) for more information. SHOP is designed to help small business owners provide insurance to their employees in the most cost-effective way. Businesses that qualify for healthcare credits may get reimbursed for up to 50% of the cost of premiums.
Am I eligible for the small business health tax care credit?
If you have fewer than 25 full-time employees with wages less than $50,000 on average, you qualify for employer tax credits. To meet eligibility requirements, employers must contribute at least 50% of the total premium cost or 50% of a benchmark premium. Look into your state’s marketplace for more information. To be eligible for tax credit, you must purchase coverage through the SHOP marketplace.
What if I forgot to claim a health care tax credit?
If you are a small business owner who would benefit from a tax credit but forgot to claim it, you can always file an amended return. According to the IRS, claims for a refund must be filed within 3 years from the time the original return was filed or two years from the time the tax was paid.
As a small business owner, should I provide healthcare to employees?
If you have fewer than 49 employees and are not mandated by the ACA, you may wonder about whether you should provide healthcare. Many small business owners have found that providing insurance coverage is a benefit that will help attract and retain the best employees. There are also tax credits that can help make providing insurance more affordable. Ultimately, every small business owner needs to explore their options and weigh the pros and cons of providing coverage. Tax credits can help protect your bottom line while meeting the needs of your employees.