A Quick Guide to What You Should Be Doing NOW for the Affordable Care Act
Friday, May 16th, 2014
Between the time President Barack Obama signed the Affordable Care Act into law in 2010 and today, there have been a number of adjustments and changes to its implementation.
One thing hasn’t changed, however. As of 2014, Americans, including solopreneurs and employees of small businesses, are required to carry health insurance as individuals. If you don’t, you may face a penalty come tax time. However, subsidies may be available to make coverage affordable.
As for businesses that have employees, depending on the size of the business you may be required to provide health plans for employees. Also depending on size, you may be able to tap into SHOP marketplaces and get access to tax credits or deductions.
The following is an update on the current status and where things stand today in 2014, depending on the size of your business.
Self-Employed Small Business Owner
As a self-employed small business owner or solopreneur employing no one but yourself, you might think your business is not subject to the Affordable Care Act.
But it is in the sense that you fall under the individual mandate. You are required to carry health coverage for yourself beginning this year.
The penalty for not having coverage is the higher of $95 per person ($285 per family) or 1% of your yearly household income. But, by 2016, it will have escalated to $695 per adult and $2,085 per family. The penalty is paid on your annual tax return. See Healthcare.gov for details.
There are over 20 million self-employed small business owners in the Unites States. As a self-employed business owner, you are able to deduct the cost of your own insurance premiums. See the official IRS website for more.
What to do now: Even though the enrollment period for 2014 is closed, there’s always next year to begin planning for. Calendar a reminder for later this year to talk with your insurance agent and/or check the healthcare websites (Federal or state exchanges) to begin shopping around for 2015. Just give yourself enough time to get a renewal decision from your existing insurer and/or look at other quotes.
Under 50 Employees
If your small business employs fewer than 50 full-time workers, you are not required under the ACA to provide healthcare insurance benefits for them. But for various reasons, including a desire to help your workers, you may choose to do so. Also, there are some tax advantages available in certain cases.
For those employing fewer than 25 full-time employees, a tax credit is available. The credit is available to companies paying an average wage of less than $50,000 a year that decide to offer employee benefits. Also, for those businesses, the IRS says the maximum tax credit is 50 percent of premiums paid. But to be eligible for the tax credit, you must pay premiums on behalf of employees who are enrolled in a plan offered through a Small Business Health Options Program (SHOP) Marketplace. And the credit is available for two consecutive taxable years only.
For those with 25 to 50 full-time employees, SHOP coverage is available; however, the tax credit is available only for businesses with fewer than 25 employees. And of course, you can always choose to provide your own plan and not use the SHOP Marketplaces.
What to do now: Look into SHOP marketplaces (by state you are located in) if you haven’t already done so. The SHOP section of the federal website is not yet fully functional, but help is available via phone and you can go through your own insurance professional. You can enroll in SHOP coverage any time. More information is at the Healthcare.gov SHOP website.
Also, make sure you understand how to calculate a “full-time employee” as there are very specific rules around the definition. For purposes of the law, full-time employees are defined as those working at least 30 hours a week or 130 hours a month. The calculation must include not only time paid for work but also vacations, sick days other paid off time, reports ADP. Since your obligations and rights to the tax credit depend on exact numbers of full-time employees, you need to make sure you are keeping good records and making the proper calculations in order to comply.
50 to 99 Employees
If your business employs between 50 and 99 full-time employees, the ACA currently requires you to begin providing healthcare coverage for your workers beginning January 2016. That’s a later date than the deadline for larger businesses to comply.
What to do now: Carefully evaluate all reduction in force or termination decisions, if any, you implement between now and 2016. To qualify for the January 2016 date, you must certify under penalty of perjury that your company didn’t reduce workforce to fewer than 100 employees just to delay complying with the mandate .
SHOP coverage (mentioned above) will be available for employers with 100 or fewer full-time employees no later than Jan. 1, 2016, according to a U.S. Department of Health and Human Services website.
100 Plus Employees
If your company currently has 100 or more full-time employees in place, the employer mandate for providing those workers with healthcare benefits goes into effect January 2015.
As in the case of companies with between 50 and 99 employees, your company will face penalties if you fail to provide healthcare coverage or provide coverage that is not affordable to your employees as defined by the law. Your company would then be required to pay an Employer Shared Responsibility Payment equal to the number of employees multiplied by $2,000.
What to do now: Educate your employees. The majority of employees expect help from their employer on healthcare decisions. And it’s never too soon to start planning!
Changes in Sentiment?
Interestingly, there’s lot of chatter right now wondering aloud whether the employer mandate should be eliminated altogether. A recent analysis by the Robert Wood Johnson Foundation suggests eliminating the employer mandate would have no substantial effect on the number of insured or the cost of healthcare to taxpayers.
But a word of caution for business owners: Talk of eliminating the employer mandate is just that and nothing has been decided on that point. As of this writing, the deadlines set forth in the healthcare law as listed above remain in effect. However, keep tabs because there may be other changes.
Finally, remember that this is a complicated area with many legal and operational wrinkles. Talk with your insurance and tax professionals for information specific your business’s situation.