William E. Hardy, CPA
Principal
Harris, Hardy & Johnstone, PC
George G. Crowell, CPA, CITP
Principal
Harris, Hardy & Johnstone, PC
bhardy@hhjcpa.com
34 Years Experience
gcrowell@hhjcpa.com
20 Years Experience
www.hhjcpa.com
SMALL EMPLOYER HEALTH INSURANCE CREDIT
Do I Qualify for the Health Care Credit? Am I an Eligible Small
Employer?
 It depends
 Do you have less than 25 FTEs?
 Are the average wages of your employees less than $50,000?
 If you meet the above criteria, then YES.
 Are there any other requirements?
 Generally must pay at least 50% of the Premium.
 In 2010 – 2013, Health Insurance provided through a Qualifying Arrangement
 Beginning in 2014, Health Insurance must be bought through a SHOP.
SMALL EMPLOYER HEALTH INSURANCE CREDIT
How does the credit work?
 You receive a credit for a percentage of the EMPLOYER premiums
paid.
 In 2010 – 2013, up to 35% for ESEs and 25% for Tax-exempt Employers.
 Beginning in 2014, up to 50% for ESEs and 35% for Tax-exempt Employers
 For ESEs, credit is limited to regular income tax and AMT, can be carried back or
forward
 For Tax-exempt Employers, credit is refundable (must file 990-T)
 Phase-outs
 If you have between 10 and 25 employees, the credit is reduced.
 If your average wages are between $25,000 and $50,000, the credit is reduced.
 Credit reductions are combined if both situations apply.
SMALL EMPLOYER HEALTH INSURANCE CREDIT
How does the credit work?
 What is an FTE or Full-Time Equivalent?
 For every 2,080 employee hours working in a year you have one FTE.
 If you have two employees, each who work 20 hours per week for the entire
year, you have one FTE.
 The following are not counted in the FTE calculation:





Owner of sole proprietorship
Partner in a partnership
> 2% shareholder in a S-Corporation
> 5% shareholder in a C-Corporation
Person who owns more than 5% of capital or profits in any other non-corporate
business
 Any family member or non-family member dependents of those above
 Seasonal employees who work less than 120 days
SMALL EMPLOYER HEALTH INSURANCE CREDIT
How does the credit work?
 What if I did not the claim credit in prior years, but I qualified?
 You can amend any open years to claim the credit
 If amending a pass-through entity (Partnership or S-Corp), the shareholders will
also have to amend their returns
 The following are not counted in the FTE calculation:





Owner of sole proprietorship
Partner in a partnership
> 2% shareholder in a S-Corporation
> 5% shareholder in a C-Corporation
Person who owns more than 5% of capital or profits in any other non-corporate
business
 Any family member or non-family member dependents of those above
 Seasonal employees who work less than 120 days
SMALL EMPLOYER HEALTH INSURANCE CREDIT
Tax Years 2010-2013
ESEs
SMALL EMPLOYER HEALTH INSURANCE CREDIT
Tax Years 2010-2013
Tax-exempt
Employers
SMALL EMPLOYER HEALTH INSURANCE CREDIT
2014 and Beyond
ESEs
SMALL EMPLOYER HEALTH INSURANCE CREDIT
2014 and Beyond
Tax-exempt
Employers
25 to 49 Employees
Am I subject to penalties?
 No, as long as your FTE count does not exceed 49
 May face penalties if you discriminate in your health insurance
coverage, starting in 2015
Can purchase insurance from SHOPs, Small Business Options
Program
25 to 49 Employees
Need to be especially careful as you approach 40 employees
 Should track hours for each employee to make sure you do not
reach or pass 50 FTEs
 Will need to be more aware of whether independent contractors
could qualify as employees
 Make sure you include all related businesses in your FTE count
Will probably face higher premiums if you provide insurance
for your employees
50 or more Employees – The Penalty Zone
Two potential penalties (Beginning in 2015):
 §4980H(a) Penalty for not offering Minimum Essential Coverage
 Employer does not offer affordable minimum essential coverage to at least 95%
of its full-time employees (including dependents starting 2015) and at least one
employee qualifies for the Premium Assistance Credit
 §4980H(b) Penalty for not offering affordable Minimum Essential
Coverage that provides minimum value
 Employer does provide coverage to at least 95% of its full-time employees
(including dependents starting in 2015), but the coverage is either unaffordable
or does not provide minimum value
50 or more Employees – The Penalty Zone
§4980H(a) Penalty for not offering Minimum Essential
Coverage
 $2,000 for each full-time employee, over the 30 employee threshold
 The penalty is calculated and paid on a monthly basis
($2,000 ÷ 12 Months = $166.67 per month)
50 or more Employees – The Penalty Zone
§4980H(a) Penalty for not offering Minimum Essential Coverage Example
In 2015, Able Automotive has 60 employees, who each work 40 hours a
week (i.e., are full-time employees) every week in the year. Therefore, Able
is an applicable large employer. Assume all employees have worked for
Able for more than one year and were determined to be ongoing full-time
employees who must be offered health insurance coverage for the 2015
calendar year. Able does not offer minimum essential health insurance
coverage for the employees in the months January-March. Beginning in
April, Able offers affordable minimum essential coverage for all full-time
employees and their dependents. Ten full-time employees are certified to
Able as having enrolled in a QHP in the individual market through the state
insurance marketplace and received the premium assistance credit for
January-March.
Able's penalty for not offering minimum essential coverage for the first
quarter of 2015 is $15,000.30 [(60 full-time employees - 30 full-time
employee threshold) × 3 months × $166.67 per month].
50 or more Employees – The Penalty Zone
§4980H(a) Penalty for not offering Minimum Essential
Coverage - Example
NOTE: Although only 10 full-time employees received the premium
assistance tax credit, Able’s penalty is based on 30 employees
(60 full-time employees – 30 full-time employee threshold)
50 or more Employees – The Penalty Zone
§4980H(b) Penalty for not offering affordable Minimum
Essential Coverage that provides Minimum Value
 $3,000 annually per employee, and will be adjusted for inflation
beginning in 2015
($250 per month x 12 months = $3,000)
 Employer is subject to the penalty for each employee for whom the
employer has received notification that the employee enrolled in a
Qualified Health Plan (QHP) in the individual market through a state
insurance marketplace for which a premium assistance credit or
cost-sharing-reduction subsidy was allowed or paid to the employee
50 or more Employees – The Penalty Zone
§4980H(b) Penalty for not offering affordable Minimum
Essential Coverage that provides Minimum Value
 The total §4980H(b) penalty cannot exceed the penalty that would
be calculated under §4980H(a)
50 or more Employees – The Penalty Zone
§4980H(b) Penalty for not offering affordable Minimum Essential
Coverage that provides Minimum Value - Example
In 2015, Able Automotive (an applicable large employer) offers minimum
essential coverage to its 60 full-time employees and their dependents.
However, Able's coverage is not affordable. The state insurance
marketplace notified Able that 25 full-time employees were paid a
premium assistance credit to purchase insurance in a QHP in the individual
market through the marketplace for the entire year.
Able's penalty for offering unaffordable coverage for 2015 is $75,000 (25
full-time employees × 12 months × $250 per month). However, the penalty
is capped at $60,001.20 [(60 full-time employees - 30-employee threshold)
× 12 months × $166.67 per month]. This is the Section 4980H(a) penalty
that would have applied had Able not offered minimum essential coverage
insurance coverage for the entire year.
50 or more Employees – The Penalty Zone
§4980H(b) Penalty for not offering affordable Minimum
Essential Coverage that provides Minimum Value - Example
NOTE: Affordability safe harbors are available that may provide
relief from the §4980H(b) penalty with respect to some
employees
50 or more Employees – The Penalty Zone
§4980H(b) Safe Harbors
 Form W-2 Safe Harbor: Employee contribution <= 9.5% of Box 1 W-2
wages
 Rate-of-pay Safe Harbor: Employee contribution <=9.5% of amount
calculated below
 Hourly employees: take hourly rate x 130 hours compared to required
contribution for lowest-cost, self-only coverage
 Salaried employees: monthly salary compared to required contribution for
lowest-cost, self-only coverage
 Employer cannot reduce hourly rate or salary during the year. Also, if coverage
is offered at least one day of the month, the entire month is counted
50 or more Employees – The Penalty Zone
§4980H(b) Safe Harbors
 Federal Poverty Line (FPL) Safe Harbor
 Coverage is considered affordable if the employee’s monthly cost for the
lowest-cost, self-only coverage does not exceed 9.5% of the FPL for a single
individual
 Annual FPL is divided by 12 for the monthly amount
 Must use the most recently published poverty guidelines as of the first day of
the plan year for the state in which the employee works
Individual Mandate – On an Island
Penalty for Remaining Uninsured
 Minimum Essential Coverage is required to avoid the penalty
(insurance purchased through the Exchange will qualify)
 The penalty imposed on the uninsured under 18 is one-half of that
imposed on adults
 A taxpayer is responsible for providing coverage for someone if
they are able to claim a personal exemption for that person
 Some will be exempted from the penalty
Individual Mandate – On an Island
Penalty for Remaining Uninsured
The Individual Shared Responsibility Penalty
 The per adult annual penalty is phased in:
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
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
2014: Greater of 1% of applicable income or $95
2015: Greater of 2% of applicable income or $325
2016: Greater of 2.5% of applicable income or $695
2017 and beyond: Indexed for inflation from $695
 Applicable income = Excess of household income over the threshold
filing amount
Individual Mandate – On an Island
Penalty for Remaining Uninsured
The Individual Shared Responsibility Penalty
 The maximum household penalty is the greater of the annual
percentage amount or 300% of the adult penalty
 The penalty cannot exceed the cost of a bronze level plan
 The penalty applies to any period essential coverage is not
maintained (monthly)
 The penalty is assessed through the Internal Revenue Code (no liens
or levies allowed)
Individual Mandate – On an Island
Premium Assistance Credit
 Credit available for those with incomes up to 400% of FPL, currently,
$44,680 (single) $92,200 (family of four)
 Insurance must be obtained through an exchange
 Current year advanced credit based on current year income, if
available
 Generally, the prior year tax data is used to determine eligibility
 Assistance Credit is trued up when current year’s tax return is filed
Individual Mandate – On an Island
Reduced Cost Sharing
 Cost sharing is available for those with incomes up to 250% of FPL
 Only available for in-network services, does not include non-covered
services
 Must be enrolled in a silver-level QHP
 Total out of pocket is adjusted based on HHS guidelines
Individual Mandate – On an Island
Who is exempt from the Individual Shared Responsibility
Penalty?
Individual Mandate – On an Island
Who is exempt from the Individual Shared Responsibility
Penalty?
 If the premiums exceed 8% of household income
 Includes the AGI of dependents who are required to file a return
 Does not include non-taxed Social Security benefits