Affordable Care Act: Tax Provisions and Employers

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The Affordable Care Act (ACA) contains several tax provisions that affect employers. Under the ACA, an employer’s workforce size determines which provisions apply.

An employer with 50 or more full-time employees or full-time equivalents is considered an “applicable large employer,” or ALE under the ACA.

For purposes of the employer shared responsibility provision, the number of employees a business has during the current year determines whether it is an ALE the following year. Employers make this calculation by averaging the number of employees they had throughout the year, which takes into account workforce fluctuations many employers experience.

More than 95 percent of employers have fewer than 50 full-time employees or equivalents, and they are not subject to the employer shared responsibility provision. Calculating the number of employees is especially important for employers with close to 50 employees or those whose workforce fluctuates throughout the year. The number is important because if an employer has 50 or fewer employees, it can purchase health insurance coverage for its employees through the Small Business Health Options Program (SHOP).

Employers that have fewer than 25 full-time equivalent employees with average annual wages of less than $50,000 may be eligible for the small business health care tax credit if they cover at least 50 percent of their full-time employees’ premium costs and generally, after 2013, if the coverage is purchased through the SHOP.

All employers, regardless of size, that provide self-insured health coverage must file an annual return reporting certain information for individuals they cover. The first returns are due to be filed in 2016 for the year 2015.

Employers with exactly 50 employees can purchase coverage for their employees through the SHOP. ALEs must file an annual return reporting whether they offered health coverage and if so, what coverage they offered their full-time employees.

Effective for calendar year 2015, ALEs with 100 or more full-time employees or equivalents will be subject to the employer shared responsibility provision and, therefore, may have to make a shared responsibility payment. This applies to employers that do not offer adequate, affordable coverage to their full-time employees and one or more of those employees get a premium tax credit. The employer shared responsibility provisions will be phased in for smaller ALEs from 2015 to 2016.

As noted above, all employers, regardless of size, that provide self-insured health coverage must file an annual return reporting certain information for individuals they cover.

The ACA and its many ramifications for businesses can be difficult to understand.  Contact our professionals at 717.392.8200 if we can help clarify the act and its tax implications for your business entities.