The Affordable Care Act (Obamacare) brings a new set of changes to business owners. In this article we explain some of the key things you need to know about Obamacare for small business.
With premiums, tax credits, penalties, exchanges, and delays being updated continuously, the recent health care reform legislation can be confusing to navigate for individuals and businesses. Regardless of your political stance on the subject, you must make sure you are meeting certain requirements.
What’s Already in Place?
For employers filing over 250 Forms W-2, the Affordable Care Act established the requirement for employers to report the aggregate cost of employer-sponsored health care coverage on all employees’ annual Form W-2 statements. Using Box 12 with Code DD, the reported figure includes both the portion paid by the employer and by the employee. Inclusion on the W-2 does not mean the reported figures are taxable; excludable contributions continue to be excludable from the employee’s income. The IRS states the reported value is for informational purposes only and can aid employees when comparing their health care coverage options. Required coverage to be reported includes employer-sponsored major medical, health FSA value in excess of an employee’s cafeteria plan salary reductions, hospital indemnity or illness paid by employer or through salary reduction, and domestic partner coverage included in gross income. If an employer charges a COBRA premium, they are required to report values for their Employee Assistance Plan, on-site medical clinics, and wellness programs. Optional values to be reported include supplemental or optional dental and vision plans, health reimbursement arrangement contributions, self-funded plans, and multi-employer plans.
Medicare Surtax on Employee Wages
Under the Affordable Care Act, effective January 2013, employers are required to withhold an additional 0.9% in Medicare tax on employees with earned income exceeding $200,000 for single filers and $250,000 for joint filers. The employer potion remains unchanged at 1.45%.
FSA Limit and Carryover
Health Flexible Spending Accounts (FSAs) are exclusive to job-based health plans that are compliant with the Affordable Care Act. Employees can elect to hold pre-tax funds aside in an FSA to be used towards certain out-of-pocket health care costs including medical and dental co-pays and deductibles and prescription medications and over-the-counter drugs, only with accompaniment of a doctor’s prescription. The funds cannot be applied to insurance premiums or towards an individual’s exchange-based insurance plan. Full-time employees can now elect to withhold up to $2,500 into their FSA each year. While the money used to be “use it or lose it,” employers can now either allow the employee to carry over up to $500 to use the following year or offer a grace period of up to two and a half extra months to use the remaining FSA funds.
What’s Effective in 2014?
2014 marked the beginning of enrollment in the private Health Insurance Marketplace for individuals and employees of small businesses. Under the Fair Labor Standards Act, employers are required to distribute a written notice to new and current employees, both full-time and part-time, of three aspects to consider when making a decision on their health care options:
- A description about the Health Insurance Marketplace and enrollment.
- An explanation that the employee could be eligible for more affordable health care through the Marketplace than their employer provided coverage, depending on their income.
- If the employee elects to purchase health insurance through the Marketplace, they may receive a tax credit, but will lose any employer contribution to their health benefits.
The Small Business Health Options Program Marketplace (SHOP) is an option for small businesses with less than 50 full-time equivalent employees. While the federal Marketplace is currently offering one plan option, by 2015 a range of four options of varying coverage will be offered. States with their own exchanges can work with employers to offer a range of plans to their employees. However, your business must meet your state’s minimum participation rate for enrollment, which is generally a minimum of 75% of your eligible employees. SHOP will become available to employers with 100 full-time equivalent employees or less beginning January 1, 2016.
For small businesses with less than 25 full-time employees, a benefit of SHOP for 2014 is the availability of the Small Business Health Care Tax Credit to help offset the cost of employer-sponsored coverage. The credit is worth up to 50% of an employer’s contributions to premiums (up to 35% for tax-exempt employers), even if your state has not yet established a program. To receive the credit, qualified employers must be paying at least 50% towards full-time employees’ premium costs, and the employees must earn an average of $50,800 a year or less.
Waiting Periods and Wellness Programs
Effective 2014, the Affordable Care Act requires employer offered plans to not exceed 90 calendar days, or a “waiting period,” before coverage becomes effective for eligible full-time employees. Variable hour employees have up to a year for a determination to be made if the employee meets full-time equivalent eligibility for coverage, but coverage must become effective by their 13th month after that employee’s start date.
Another provision of the Affordable Care Act that affects employer policies is workplace wellness programs, which are intended to prevent illness, promote overall better health within the organization, and control health care spending. Programs have been increasingly adopted into employer benefit packages in recent years and can be either classified as health-contingent, where select employees participate in goal-oriented activities and can receive an award when certain outcomes are achieved, or they can be participatory, which is open to all employees regardless of health status. Participatory wellness programs are not activity or outcome based and can include educational seminars, reimbursement for gym memberships or smoking cessation services, waiving costs for physicals or check-ups to encourage preventative care, or host diagnostic tests and risk assessments to promote general health awareness. For health-contingent programs, as long as they are considered reasonably designed, employees can be rewarded up to 30% of the cost of health coverage or up to 50% in programs designed to reduce tobacco use. In addition, for small and mid-sized businesses looking to implement a new wellness program, employers with less than 100 employees working a minimum 25 hours per week are eligible to receive grants to aid in funding their program.
What’s Delayed Until 2015?
Also known as Employer Shared Responsibility (ESR), the employer mandate requires employers with over 50 full-time equivalent employees to offer minimum essential health insurance coverage to their workforce or face a penalty tax from the IRS. Employers will be subject to penalties for failing to offer coverage or if the employer’s coverage is considered unaffordable or too low of value to the full-time employee. A penalty payment can also be imposed on the employer if at least one eligible full-time employee qualifies to receive a premium tax credit from obtaining coverage through the individual marketplace, most likely due to the employer not offering them coverage or their coverage options not being affordable. Businesses exceeding 100 full-time employees must provide coverage to 70% of their eligible employees in 2015 and to 95% by 2016. Mid-sized businesses with 50-99 full-time employees will not have to comply until January 2016. Businesses subject to the ESR are required to report their health care coverage details for full-time employees to the IRS, which aids in determining the penalty excise taxes they could face. As an employer, it is important to evaluate your staff status and eligibility, assess your health care offerings ahead of the deadline, and also to familiarize yourself with other options available to your business, including the SHOP Marketplace. To determine current employee status on who will need to be offered coverage in 2015, HealthCare.Gov has an employee hours calculator to guide you in determining full-time equivalent employee status, or your payroll specialist can aid you in an accurate calculation as well.
Employers should be aware that beginning January 1, 2015, the limit on out-of-pocket payments towards deductible and co-pays will rise to $6,350 for individuals and $12,700 for families.
Contact Abacus Payroll at 856 667 6225 or by Email if you’d like help ensuring your business complies with the Affordable Care Act.
Read how Abacus helped Charlie Kirchner stay on top of Obamacare.
For more information and to stay up to date on how the Affordable Care Act affects your payroll and employer responsibilities, there are several resources that may prove useful for you:
- Visit Healthcare.Gov
- IRS’s Affordable Care Act Provisions Webpage
- The Department of Labor and Employee Benefits Security Administration’s Affordable Care Act Resource Center
- The U.S. Small Business Administration’s Health Care Section
- And frequently return to Abacus Payroll’s Health Care Reform section of our Resources Center for the latest details.