How to Understand and Comply with Affordable Care Act Requirements

The Affordable Care Act (ACA) is five years old, and yet many people still struggle to understand the law and its implications. Frequent changes and differing requirements for businesses of varying sizes complicate efforts to stay up-to-date.

A number of key ACA tax provisions went into effect on January 1, 2015, meaning that businesses and individuals need to understand their responsibility under the law in order to be in compliance when filing their tax returns. I spoke to my colleague, Louis Balbirer, CPA, a director of tax services who has given several seminars on ACA tax compliance. He answered the following questions for businesses and individuals looking to understand Affordable Care Act requirements.

How are large businesses affected?

In 2015, your company’s ACA responsibility depends on the number of full-time equivalent (FTE) employees you have.  Large employers, defined as having more than 100 FTE employees, are subject to the employer mandate. The employer mandate states that an employer with any FTE employees who claim a health insurance premium tax credit or cost-sharing reduction when obtaining coverage on a health insurance marketplace may be subject to an IRS shared responsibility assessment.

If the employer doesn’t offer minimum essential health coverage to 95% of its employees, the employer will pay an assessed payment based on the total number of FTE employees, minus 30. For example, if an employer has 200 full-time equivalent employees, he or she will pay the assessed payment for 170 of those employees.  In 2015, the reduction is 80 instead of 30 for employers with 100 or more FTE employees, meaning that an employer with 200 full-time equivalent employees would pay the assessed payment for 120 of those employees.

If the company offers health coverage, the payment amount will be based on the number of employees who claimed a premium tax credit for one of three reasons. They were not offered coverage, they found the coverage unaffordable or it didn’t meet minimum value standards. Employer shared responsibility requirements went into effect on January 1st of this year.

How are small businesses affected?

Small businesses are defined as having 50 or fewer FTE employees. If your company falls into this category, you are exempt from the employer mandate.

For midsized businesses – defined as having more than 50, but fewer than 100 FTEs – Affordable Care Act responsibilities will be phased in by 2016. These businesses will not be subject to employer shared responsibility provisions this year if they satisfy other requirements.

The Small Business Health Care Credit, a tax credit that covers 50% of premiums paid by qualified employers, is available to employers paying health insurance premiums on behalf of employees enrolled in a plan offered through the Small Business Health Options Program (SHOP) marketplace. It’s important to note that this credit may only be claimed for two consecutive tax years, beginning after 2013.

How are individuals affected?

If you are a U.S. citizen or a non-citizen resident of the U.S., you are required to have health insurance. If you are not covered under health insurance and you don’t qualify for a health exception, you will be required to make a payment when you file your tax return. Those payment amounts will be gradually increasing over the course of the next several years.

Every individual and his or her dependents are required to have minimum essential coverage (MEP) for every month of the tax year. If you have health coverage through your employer or under a government program, you simply need to indicate that by checking a box on your personal tax return.

If you don’t have health coverage during 2014, for all or part of the year, you may qualify for an exemption.  To determine if you qualify, file Form 8965, Health Coverage Exemptions and submit it with your tax return.  If you don’t qualify for an exemption and you weren’t covered in 2014, you will be required to make an individual shared responsibility payment for each month that you went without health coverage.

It’s important to understand your personal and business Affordable Care Act responsibilities before filing your tax return this year in order to be in compliance and avoid penalties. If you have questions about current and future ACA requirements, contact me, Louis or another member of Kaufman Rossin’s tax department.

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Lisa Kahn Grossman is an associate principal in the Entrepreneurial Services department of Kaufman Rossin. She works with entrepreneurs, high-net worth individuals, and nonprofits. She is a certified QuickBooks ProAdvisor, a licensed Certified Public Accountant in the State of Florida, and a member of both the American Institute of Certified Public Accountants and Florida Institute of Certified Public Accountants.