THE AFFORDABLE CARE ACT “WHAT’S IN IT FOR MY SMALL BUSINESS?” TAX CONSIDERATIONS October 9, 2014
berrydunn.com | GAIN CONTROL
INDIVIDUAL MANDATE 1/1/2014 Individual advance tax credits available •
Income requirements (100% to 400% of Fed. Poverty Level) 2014 • Single @ 400% = $46,680 • Family of 4 @ 400% = $95,400
2013 $45,960 $94,200
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Credit amount lessens as income goes up / sliding scale
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Coverage requirements • May not be eligible for Medicaid or Medicare or private coverage • May not be eligible for Employer coverage (Affordable & Minimum Value)
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INDIVIDUAL MANDATE 1/1/2014 Individual cost sharing subsidies available •
Income requirements (100% to 250% of Fed. Poverty Level) 2014 • Single @ 250% = $29,175 • Family of 4 @ 250% = $59,625
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Applied automatically • • •
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Must buy a silver plan Out-of-pocket expenses partially paid by government (sliding scale) Out-of-pocket maximums are also lowered
Qualifying person: Buy Bronze (no subsidy) or Silver (subsidy)? •
Requires analysis
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INDIVIDUAL MANDATE 1/1/2014 Will an offer of Employer health coverage void Employee’s ability to qualify for an Exchange credit? • •
Yes – if coverage is Affordable & provides Minimum Value But – – Employer need not offer coverage to Spouse – A way to leave Spouse credit eligible • But – Household Income may make spouse ineligible!
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Small Employer Health Coverage • Small & Medium sized Employers 2014 - 2015 • Small Employer • Less than 50 Employees (full-time & full-time equivalents) • Final 4980H Employer penalty regulations issued 2/10/2014 • 2015 Transition rule exemption for medium sized ERs • 50-99 Employees (full-time & full-time equivalents) • Certification and various other requirements • Can’t reduce workforce • Can’t reduce current coverage
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Small Employer Health Coverage Pre-tax nature of employer coverage • • •
Employer premiums are fully deductible / payroll tax free Employee portion is income & payroll tax free (if paid through a Sec. 125 plan) Employers can provide pre-tax HRAs, Health FSAs and HSAs
After-tax nature of Exchange coverage • •
Employee cost, after subsidy (if any), is after-tax Any Employer ‘bonus’ will be subject to income & payroll taxes
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Small Employer Health Coverage Employer pre-tax payment for individual health insurance premiums • Virtually impossible due to Notice 2013-54 • No stand alone HRAs, Section 125 Plans, or Employer Payment plans • Effective 1/1/2014
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Small Employer Health Coverage Employer pre-tax payment for individual health insurance benefits • Consider a HDHP + HSA strategy • Employee individual HDHP policy (on or off Exchange) • Tax-free HSA contributions by Employer – comparability rule •
Note: HSA $ may NOT be used to pay premiums!
• Plus – if individual HDHP is on the Exchange •
Potential Employee premium subsidy!
• The Maine Exchange now offers HSA eligible (HDHP) individual policies 8
Small Employer Health Coverage Private Exchanges • • • • •
Defined contribution health plans Large companies are adopting A way to provide EEs with a variety of health plan choices New exchanges are available for smaller companies ER premium payments are pre-tax • When structured properly as a group policy
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SMALL BUSINESS HEALTH CARE TAX CREDIT IRC §45R - Maximum credit equals 50% [35% for 501c NFPs] • • • • •
25 or fewer FTE’s to qualify for any credit • Aggregation rules apply Average annual wages less than $50,800 (2014), and Employer pays 50% or more of insurance premiums Must use SHOP starting in 2014 Two consecutive taxable year limit starting in 2014
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SMALL BUSINESS HEALTH CARE TAX CREDIT MAXIMUM CREDIT (50% / 35%) •
10 or fewer FTEs to qualify
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$25,400 (2014) or less average wages to qualify
CREDIT PHASE OUT BETWEEN • 10-25 FTE’s • Average wages 25K-50K
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SMALL BUSINESS HEALTH CARE TAX CREDIT DETERMINATION OF NUMBER OF FTES •
Divide total annual hours/2,080 = number of FTEs •
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EE hours in excess of 2,080 do not count
Excluded employees • •
Owners & their family members Seasonal Workers (< 120 days/year)
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SMALL BUSINESS HEALTH CARE TAX CREDIT DETERMINATION OF AVERAGE ANNUAL WAGES • Divide total wages by # of FTEs = Average annual wages • All wages paid to qualifying employees are included – even for hours in excess of 2,080. But – exclude wages paid to: • Owners & their family members • Seasonal Workers (< 120 days/year)
• The relevant period is the Employer’s taxable year.
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SMALL BUSINESS ANNUAL ACA REPORTING ACA REPORTING UNDER IRC SECTIONS 6055 & 6056 • Section 6055 – Minimum Essential Coverage reporting • Any size ER with a self-insured plan providing MEC [Insurers report for insured plans] • Voluntary for 2014; required for 2015 • Form 1095-B information return [Form 1094-B is the Transmittal]
• Section 6056 – Large Employer FT EE reporting • Only applies to Applicable Large Employers (incl. medium-sized ERs for 2015) • Voluntary for 2014; required for 2015 • Form 1095-C information return [Form 1095-B is the Transmittal]
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INTERESTED IN MORE? Contact Roger Prince, a Senior Manager in BerryDunn’s Employee Benefit Consulting Group, to learn more.
[email protected] Phone 207.541.2314 Website berrydunn.com Blog berrydunn.com/firmfooting
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