Opinion remains sharply divided on whether the Affordable Care Act (ACA) will turn out to be good, bad, or inconsequential for American businesses, but it is now the law of the land and has an impact on businesses of all sizes. Those least affected by tax, regulatory, and reporting issues are businesses with fewer than 50 full-time equivalent employees (FTEs), although they do face additional requirements in reporting and tax withholding. Companies with fewer than 25 FTEs also face minimal additional duties from ACA, plus they may be eligible for significant tax credits if they provide health care coverage for their employees.
The Small Business Health Care Tax Credit may be the most interesting aspect of ACA for companies with fewer than 25 employees, says Jeffrey Ingalls, president of The Stratford Financial Group, an insurance consulting and brokerage firm, and author of Healthcare Reform Made Easy. In order to claim the credit, a business must cover at least 50 percent of the cost of single (not family) health care coverage for each of its employees, and those employees must have average annual wages of less than $50,000, a figure that will be adjusted for inflation beginning this year. Additionally, employers will have to purchase insurance through the Small Business Health Options Program (SHOP) Marketplace to be eligible for the credit for tax year 2014 and subsequent years.
Businesses in states that have set up their own exchange sites can purchase qualifying insurance coverage through those sites (click here to see if your state has a site). Launch of the federal government’s SHOP Marketplace for businesses in states that don’t have their own site has been postponed until November, but businesses can still qualify for the 2014 credit by enrolling their employees in coverage through an agent, broker, or insurer that offers a certified SHOP plan and has agreed to conduct enrollment according to Department of Health and Human Services standards.
While ACA does not mandate businesses with fewer than 50 FTEs to provide health care insurance to their employees, it does impose notification requirements on any employer covered by the Fair Labor Standards Act (FLSA). (In general, any firm that has at least one employee and at least $500,000 in annual dollar volume of business is covered by the FLSA.) Those businesses must provide notification to their employees about the new Health Insurance Marketplace where employees can obtain coverage on their own. Most people are required to have basic health coverage as of January 1 of this year or be subject to a penalty. Businesses covered by the FLSA must also inform their employees that they may be eligible for a premium tax credit if they purchase coverage through the Marketplace, and they must advise employees that if they purchase a plan through the Marketplace, they may lose the employer contribution, if any, to any health benefits plan offered by the employer. A sample notice for employers who do not offer a health care plan is available here; as is one for employers who do offer a health plan is available.
ACA also requires any business, regardless of size, that offers a health insurance plan to its employees to provide employees with a standard “Summary of Benefits and Coverage” form explaining what the plan covers and how much it costs. Likewise, all employers are responsible for withholding the increased portion of Medicare Part A Hospital Insurance that ACA imposed on employees with incomes of more than $200,000 for single filers and $250,000 for married joint filers as of January 1, 2013. The law increases the employee portion from 1.45 percent to 2.35 percent on wages in excess of those thresholds, but the employer portion of the tax remains unchanged at 1.45 percent.
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