Tax Planning: Preparing Your Business for Affordable Care Act Requirements

This is the second post in a series discussing tax planning for businesses and individuals in the face of upcoming changes. The first post of this series focused on expired tax extenders. Stay tuned for the next blog in our series, covering tax planning for individuals.

As the end of January approaches, it is now time to focus on tax planning issues for your business. The Affordable Care Act (ACA) – the single largest change to the tax code in 20 years – is creating the need for major adjustments for companies of all sizes.

Several key ACA tax provisions for employers went into effect on January 1, 2015, making it critical to determine your business’ responsibility under the law so that you will be in compliance when you file your tax return.

Determine your company’s responsibility

Your company’s responsibility under ACA in 2015 depends on the number of full-time equivalent (FTE) employees you have.

• Large Businesses: Applicable large employers (those with more than 100 FTE employees) are subject to the employer mandate. Under these rules, an employer that has any full-time equivalent employees who claim a health insurance premium tax credit may be subject to a shared responsibility assessment by the IRS.
  • If the employer does not offer minimum essential health coverage to at least 95% of its employees and their dependents, the employer’s assessed payment will be based on the total number of its full-time equivalent employees (minus 30).
  • If the company does offer such coverage, the assessed payment amount will be based solely on the number of employees who claimed a premium tax credit, either because they were not offered coverage or because the coverage offered to them was considered unaffordable or did not meet minimum value standards. Safe harbors are available both for counting FTE employees and for affordable coverage employer shared responsibility requirements, which took effect on January 1, 2015.
• Midsize Businesses: Employers with more than 50, but fewer than 100 FTEs are considered a large employer under ACA, but will not be subject to the employer shared responsibility provision in 2015 if they satisfy other requirements. For those companies, provisions will be phased in by 2016.
• Small Businesses: Employers with 50 or fewer FTEs are exempt from the employer mandate.

Beginning this year (postponed from 2014), certain large employers are required to report to the IRS whether they offer full time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan, and they have to provide details regarding the coverage offered and other required information.

For small businesses, the Small Business Health Care Credit is available to cover 50% of premiums paid by a qualified employer. To be eligible for this tax credit, premiums generally need to be paid on behalf of employees enrolled in a plan offered through the Small Business Health Options Program (SHOP) marketplace. Additionally, the credit may only be claimed for two consecutive tax years beginning after 2013.

All employers need to be aware that the ACA imposes a wide range of employer health plan access requirements known as “market reforms” to the existing list of group health care portability requirements that are enforceable through a $100 a day per affected participant excise tax.  One of the side-effects of these reforms is that employers may no longer use simple health insurance premium reimbursement plans under which the employer picks up some or all of the cost of its employees’ premiums for individual coverage (Notice 2013-54). Such plans are still permitted if they are stand-alone plans for retirees, plans that have fewer than two participants, after-tax payroll arrangements, or reimbursement plans for “excluded” benefits such as vision or dental care. Flexible spending accounts used for non-excluded benefits must be integrated into an employer health plan offering minimum essential coverage.

Businesses should continue to prepare for all the new Affordable Care Act requirements, phased-in at the beginning of this year. If you have questions about your responsibilities under the ACA, please contact me or another member of Kaufman Rossin’s tax team for more information.