Many businesses will be affected by the Employer Shared Responsibility provisions of the Affordable Care Act (ACA). Beginning in January 2015, applicable large employers will be subject to these provisions and need to be in compliance to avoid making payments to the IRS. This article will discuss the changes that will come about for businesses due to the Employer Shared Responsibility provisions attached to the ACA including new tax rules for the 2015 tax year and beyond.
The Employer Shared Responsibility Provisions
Beginning in January 2015, employers with 100 or more full-time and full-time equivalent (FTE) employees in 2015 (reducing to 50 or more for 2016 and thereafter) may be assessed fees for any month they fail to offer employer-sponsored minimum essential coverage. They may also be assessed fees if they do offer employer-sponsored minimum essential coverage, but the employee contribution amount for this coverage is deemed unaffordable. Small employers and self-insured companies do not have to comply with the Employer Shared Responsibility Provisions.
For purposes of the Employer Shared Responsibility provisions, a full-time employee is an individual employed on average at least 30 hours of service per week. An employer that meets the 50 full-time employee threshold (100 in the year 2015) is referred to as an applicable large employer.
The Employer Shared Responsibility provisions generally are not effective until Jan. 1, 2015, meaning that no Employer Shared Responsibility payments will be assessed for 2014. Employers will use information about the number of employees they employ and their hours of service during 2014 to determine whether they employ enough employees to be an applicable large employer for 2015.
Are You an Applicable Large Employer?
To be subject to the Employer Shared Responsibility provisions for a calendar year, an employer must have employed during the previous calendar year at least 50 full-time employees or a combination of full-time and part-time employees that equals at least 50 (100 for tax year 2015). An employee working 130 hours in a calendar month will be treated as the monthly equivalent of 30 hours per week.
Part-time employees need to be converted to full-time equivalent employees by calculating the aggregate number of hours (but not more than 120 hours for any one-employee) for all employees who were not employed on average at least 30 hours per week for that month. Next, divide the total hours calculated by 120. This equals the number of full-time equivalent employees for the calendar month. Seasonal employees are not included in the calculation of FTE employees.
Example: Jones, Inc. has 92 full-time employees, plus 10 part-time employees for the month. The total number of hours worked for the month by part-time workers is 1,100. Calculate the number of full-time employees.
|
|
Actual Number of Employees |
Hours Worked |
Divided by |
FTE |
|
Full-time |
92 |
|
|
92 |
|
Part-time |
10 |
1,100 |
120 |
9.2 |
|
Total |
102 |
|
|
101 |
In this example, Jones, Inc. qualifies as an applicable large employer in 2015 because it has 101 full-time equivalent employees for the month.
Companies with a common owner or part of a controlled group need to combine their employees to determine if the companies, collectively, constitute an applicable large employer. If the combined total meets the threshold, then each separate company is subject to the Employer Shared Responsibility Provisions.
Requirements for Employer to Comply with ACA Provisions
Applicable large employers must offer minimum essential health coverage to 70% of full-time employees and their dependents to be compliant. The percentage increases to 95% in 2016 and thereafter. In addition, the health coverage offered by the employer must be affordable for the employee. For this requirement, an employee’s contribution for single coverage cannot exceed 9.5% of the employee’s annual household income. The plan is also required to provide minimum value coverage to employees and their dependents. A plan provides minimum value if it covers at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan.
Play or Pay – What is the Cost of Noncompliance?
Applicable large employers that are not in compliance with the Employer Shared Responsibility provisions may be subject to two new penalties beginning in 2015. A large employer may be liable for one, but not both, of these penalties. An applicable large employer may be assessed fees for each month they:
- Fail to offer employer-sponsored minimum essential coverage to 70% of full-time employees and their dependents (increasing to 95% in 2016), AND at least one full-time employee enrolls for coverage, from the Exchange, and receives a subsidy. The assessment is equal to 1/12 of $2,000, or $166.67 per month, for each full-time employee, less the first 80 employees in 2015 (decreasing to 30 in 2016 and thereafter).
- Offer employer-sponsored minimum value coverage to full-time employees and their dependents, but the employee contribution is deemed unaffordable, AND at least one employee enrolls for coverage, from the Exchange, and receives a subsidy. The assessment is the LESSER of:
-
- 1/12 of $3,000, or $250 per month, for each full-time employee receiving a subsidy,
- OR 1/12 of $2,000, or $166.67 per month, for each full-time employee, less the first 80 employees in 2015 (decreasing to 30 in 2016 and thereafter).
Example: For every month in 2015, ABC Corp. fails to offer minimum essential coverage to its 125 full-time employees. One of ABC’s employees receives a tax credit for enrolling in a plan offered on the Colorado Exchange. For 2015, ABC Corp. will be assessed a non-deductible excise tax of $90,000. (125 full-time employees – 80 for 2015 = 45 * $2,000 = $90,000)
New Tax Forms and Reporting Required for Employer Shared Responsibility Provisions
Applicable large employers that provide health insurance coverage through an employer-sponsored plan, whether through an insurance provider or self-insured plan, must provide coverage information statements to covered employees on Form 1095-C. A copy of form 1095-C will also be submitted by these employers to the IRS with transmittal Form 1094-C. Health insurers, including sponsors of self-insured plans, will provide required information to covered employees on Form 1095-B. A copy of this form will also be submitted by these health insurers to the IRS with transmittal Form 1094-B.
For further explanation of these new forms, please follow this link:
For Draft 2014 Form 1095-C, please follow this link:
For Draft 2014 Form 1095-B, please follow this link:
Conclusion
As an employer, if you have not done so already, now is the time to determine whether you will be considered an applicable large employer. If you will be an applicable large employer, and you decide to provide an employer-sponsored health plan, you need to determine if the plan will be in compliance with the Employer Shared Responsibility provisions to avoid having to pay the excise tax. If you will be an applicable large employer and choose not to provide an employer-sponsored health plan, you should determine how much you will be required to pay and plan accordingly. If you have questions regarding this complicated subject matter, please contact us at (719) 630-1186.
