Affordable Care Act: Where Things Stand Now
For example, a company has 110 full-time employees and does not provide health insurance in 2015. One employee has income low enough to qualify for a premium tax credit to help pay for coverage obtained through a government exchange (the individual marketplace). The employer's penalty is $160,000 ($2,000 multiplied by 110 employees minus 30 employees).
If the employer offers coverage but a worker declines it and uses the premium tax credit to obtain coverage through a government exchange, then the employer's penalty is the lesser of $3,000 per employee taking the credit, or $2,000 for each full-time employee. For 2015 only, employers that provide coverage for at least 75 percent of full-time employees will not be subject to a penalty (T.D. 9655, Feb. 10, 2014). Starting in 2016, the penalty applies unless 95 percent of full-time employees are covered.
Employer coverage need not extend to employees' spouses; it merely must be offered to employees and their dependents.
Small employers (those with 50 or fewer full-time employees) are not required by ACA to provide health coverage or pay a penalty. Instead, they are incentivized to provide coverage by a special tax credit. If they pay at least half the cost of premiums, they can take a tax credit in 2014 and 2015 of 50 percent of the cost as long as coverage is obtained through the Small Business Health Insurance Options Program (SHOPs) (Code Sec. 45R). Proposed regulations clarify some details about the small employer health insurance credit (NPRM REG-113792-13, Aug. 26, 2013).
To qualify for this credit, an employer must have fewer than 25 full-time equivalent employees (FTEs). Those employees must have average wages of less than $50,400 in 2014. However, a full credit applies only for an employer with no more than 10 FTEs who have average wages not exceeding $25,400 in 2014 (Rev. Proc. 2013-35, IRB 2013-47, 537). Owners and their relatives are not taken into account.
The SHOPs are a way for small businesses to purchase coverage without a broker. SHOPs are open to employers with fewer than 50 employees (fewer than 100 starting in 2016). After 2016, states can allow larger employers to utilize SHOPs. For 2014, there is only one insurance choice in the SHOP; choices are set to be expanded for 2015.
When enacted, it had been expected that between 1.4 and four million small businesses would be eligible for the tax credit. However, in 2011, only 228,000 employers actually took the credit. The reasons for the disappointing use of the credit: the limitations on the credit (e.g., restricted payroll), complications in computing the credit (e.g., phase-outs for payroll size and amount), and general ignorance of the credit's existence.
While there have been numerous attempts to repeal or defund ACA, many of the provisions are already well entrenched, making changes difficult at this point. Still, there could be changes made after the mid-year elections in 2014 if there is a major shift in the Congress.
Sidney Kess, CPA-attorney, is of counsel at Kostelanetz & Fink, consulting editor to CCH, author and lecturer.