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
•
Credit amount lessens as income goes up / sliding scale
•
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
•
Applied automatically
•
•
•
•
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
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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
•
$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
•
•
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.
rprince@berrydunn.com
Phone
207.541.2314
Website berrydunn.com
Blog
berrydunn.com/firmfooting
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