THE AFFORDABLE CARE ACT
“WHAT’S IN IT FOR MY SMALL
BUSINESS?”
TAX CONSIDERATIONS
January 21, 2014
berrydunn.com | GAIN CONTROL
INDIVIDUAL MANDATE 1/1/2014 – Small
Employer Health Coverage
Individual advance tax credits available
•
Income requirements (100% to 400% of Fed. Poverty Level)
• 2013 Single @ 400%
= $44,680
• 2013 Family of 4 @ 400%
= $94,200
•
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 – 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
HSAs available IF Exchange policy is a HDHP
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INDIVIDUAL MANDATE 1/1/2014 – Small
Employer Health Coverage
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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INDIVIDUAL MANDATE 1/1/2014 – Small
Employer Health Coverage
May an Employer use an HSA and/or an HRA to help make a health
plan Affordable?
• HSA – NO. May not use an HSA to pay premiums.
• HRA – Yes, if integrated and $ only available for premiums.
May an Employer use an HSA and/or an HRA to help make a health
plan meet Minimum Value?
• HSA – Yes.
• HRA – Yes, if integrated and $ only available for cost-sharing.
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INDIVIDUAL MANDATE 1/1/2014 – Small
Employer Health Coverage
Employer pre-tax payment for individual health
insurance premiums – prior to 1/1/2014
• One way for small Employers to provide ‘custom’ employee
health coverage
• Direct Employer premium payment or reimbursement
• Use of HRAs possible
• Avoided income taxes and payroll taxes
• Non-discrimination rules have been non-existent
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INDIVIDUAL MANDATE 1/1/2014 – Small
Employer Health Coverage
IRS Notice 2013-54 – Effective 1/1/2014
• HRA, Employer Payment Plan, Section 125 Health FSA
• These are group health plans subject to the ACA.
• Standing alone, they fail ACA requirements (e.g., prohibition
on annual dollar limits & first $ preventative care)
• They may be integrated with an ACA compliant group health
plan
• Integration with an individual policy is not allowed
REVIEW ALL SUCH PLANS IF STILL EXISTENT
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INDIVIDUAL MANDATE 1/1/2014 – Small
Employer Health Coverage
IRS Notice 2013-54 – Effective 1/1/2014
• Exceptions
•
•
•
•
One-participant plans (sole-proprietors w/o employees)
Standalone retiree-only plans
Certain Health FSAs if carefully designed (excepted benefits)
Use of HSA with individual HDHP
• Employer contributions must be comparable
• HSA $ can not be used to pay premiums (by law)
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SMALL BUSINESS HEALTH
CARE TAX CREDIT
IRC §45R - Maximum credit equals 35% of employer health
insurance Premium cost (increases to 50% for 2014-2016)
•
•
•
•
25 or fewer FTE’s to qualify for any credit
• Aggregation rules apply
Average annual wages less than $50,000, and
Employer pays 50% or more of insurance premiums
Must use SHOP starting in 2014
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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 HEALTH
CARE TAX CREDIT
MAXIMUM CREDIT EQUALS 35% OF EMPLOYER HEALTH INSURANCE
PREMIUM COST (50% FOR 2014-2016)
•
10 or fewer FTEs to qualify for maximum credit
•
$25,000 or less average wages to qualify for maximum
CREDIT PHASE OUT BETWEEN
• 10-25 FTE’s
• Average wages 25K-50K
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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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