Small Employers and The ACA

November 11, 2015

While much is being made of the challenges facing large employers under the Affordable Care Act (ACA), small employers are also presented with changes and opportunities that are worth discussion.

A small employer is defined under the ACA as a business entity with fewer than 50 full time equivalent employees. Where multiple businesses have common ownership, care should be taken to properly determine whether those businesses, taken together, could be deemed a large employer, and therefore subject to the large employer mandates under the ACA. JPS has previously published guidance and information for large employers (see information on our JPS website dated October 14, 2015 https://www.jpspa.com/large-employers-and-the-aca/).

Opportunities For Small Employers

The good news for small employers is that there is no requirement to provide health insurance to your employees. Further, if you elect to offer coverage, it can now be purchased at a cost competitive rate via the Federal Marketplaces (the “Exchange”), under a program called the Small Business Health Options Program, or SHOP. All SHOP insurance products are automatically considered compliant with ACA rules for types of coverage that must be offered to participants. Even better, SHOP products may entitle you to claim a credit on your income tax return for the cost of coverage under the Small Business Health Care Tax Credit.

To be eligible for the credit, there are a few requirements a small employer must meet:

  • There must be at least one common law employee
  • The offer of coverage under the plan must be made to all full time employees
  • Enrollment in the plan must be achieved for at least 70% of the full time employees
  • The business must have a principal business address or at least one employee in the primary coverage area defined by the plan

Note that more than 2% shareholders in an S corporation, partners in a partnership and sole proprietors do not count as employees in the above eligibility test.

The credit can be substantial – up to 50% of the employer’s share of the premium paid. To achieve this, the employer must contribute at least 50% of the self only premium. The credit will decrease once the small employer exceeds 10 full time equivalent employees (FTE’s), and drops to -0- over 25 FTE’s. Further, annual wages exceeding $25,400 will trigger a decrease in the amount of eligible credit.

Perhaps the most important element of eligibility in claiming the health care tax credit is the requirement that the policy be certified as having been purchased on the Exchange.

Form 1095 Reporting

As with large employers, small employers are still responsible for the issuance of Forms 1095, reporting health insurance coverage to their employees, by January 31 of the following calendar year. If the plan is purchased on the Exchange, or via a commercial fully insured product, the Exchange/commercial carrier is responsible for providing those forms. No Form 1095 reporting is required of a small employer who does not provide coverage to employees.

Pre-Tax Reimbursement Plans

For many years, small employers who did not wish to sponsor a health insurance plan would allow their employees to purchase individual policies (or be covered under the policy of a family member), and simply reimburse those employees for the cost of their policy with pre-tax dollars. The IRS published guidance in February 2015 stating that such reimbursement policies were no longer permissible after June 30, 2015. Potential fines for failure to cease such reimbursement plans are steep – up to $100 per day per reimbursed employee. While Congress has been made aware of the negative impact this guidance has had on small employers, no relief legislation has been enacted at this time. More than 2% shareholders in S corporations, partners in partnerships and single employee businesses may still use this mechanism for their health insurance payments.

Contact Johnson Price Sprinkle PA if you have questions about
the application of ACA to your business.

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About Johnson Price Sprinkle PA:

Johnson Price Sprinkle PA is a leading certified public accounting firm in Western North Carolina, providing innovative solutions created specifically for small to mid-sized businesses. With a sixty-year history, JPS has built its practice on providing superior accounting and exceptional service, in taxation, business advisory and assurance, to move clients forward by giving them the power of a national firm with the attention of a community-based one.