While the most notable feature of this year’s rendition of the Affordable Care Act is its increased pertinence to medium-sized businesses, both mid- and large-scale businesses should take note of the following changes for 2016’s payroll.
Affordable Care Act & the Employer Mandate
Up to this point, the IRS has loosely enforced the Employer Mandate to ensure proper health care for full-time employees. Failure to meet traditional standards—that is, coverage for employees working an average of 30 hours per week—usually means a penalty.
In 2016, the Employer Mandate will see full implementation and increased enforcement; this increase will now include medium-sized businesses (50 to 99 employees). To meet the Employer Mandate standards, your business must offer coverage to 95 percent of your employee pool.
In addition to covering the majority of your employees, your coverage plan must also be “affordable.” The main criterion for an affordable plan is that it must not exceed 9.66 percent of your employees’ household income.
If your business doesn’t meet the Employer Mandate’s criteria, you’ll incur a $2160 penalty for each employee after the 30-employee mark; for example, if you have 100 employees, you’ll pay a penalty for 70 of them.
Your Employer Mandate form is due by the 28th of February (or the 31st of March if you file electronically). To meet this goal, distribute these forms to your employees no later than January 31st.
Inadequate Health Care Plan
On top of the Employer Mandate, you’ll also need to watch out for employees outside of your coverage. For every employee separate from the 95 percent of covered employees that receives a premium tax credit to pay for a health service, you’ll incur a $3240 penalty. This fee will also apply to any business that fails to provide affordable or complete health care to its employees. To avoid this fee, make sure your healthcare plan meets federally-mandated healthcare requirements. You’ll also need to make sure that at least 95 percent of your employees are using your coverage.
The Inadequate Health Care Plan section of the Affordable Care Act is perhaps your greatest incentive to offer full coverage.
No More Transition Relief
In 2015, most mid-sized businesses were able to evade Employer Mandate penalties by writing off their employee base as “transition relief.” The transition relief provision largely supported smaller businesses to ease their transition into the Affordable Care Act’s changes; now that the transitory period is up, mid-sized businesses can expect to incur penalties alongside their larger counterparts.
Most mid-sized businesses that took advantage of the transition relief can expect their benefits to extend until the end of their current contracts.
To avoid penalties after this provision expires, make sure that you have covered at least 95 percent of your employees per the Employer Mandate criteria.
Higher Employee Stakes
With the above changes in the Affordable Care Act comes a steeper consequence for noncompliant employees: $695 for every adult (half of that for every child) in a household who refuses to partake in minimum essential coverage for up to three months, with a maximum fee of $2085.
Noncompliant employees might instead find themselves paying 2.5 percent of their annual household income (sans the tax filing threshold) as a fee if this value is higher than the stock $695. For this reason, be sure to clearly emphasize the importance of complying with the mandatory minimum coverage value to your employees.
Keep in mind that any poor reporting or noncompliance will likely reflect back on you.
Both the 1094-B and 1094-C forms refer to the Employer Mandate section of the ACA. You’ll file these forms to report your employees’ minimum health coverage; this will determine whether you’ll need to pay a penalty.
Your insurance carrier will actually complete the 1094-B—which all employers will receive—for you. However, if you have 50 or more full-time employees, you will receive a 1094-C to fill out for your employee pool.
The 1095 form also refers to the Employer Mandate. You’ll need to distribute the 1095 to your employees on or by January 31st; they will fill out these forms with the pertinent information to determine whether your provided coverage was adequate. Since your business will incur penalties if your employees incorrectly report this information, consider helping your employees review these forms.
These forms are all due by the 28th of February (by mail) or by the 31st of March (by electronic submission) to the IRS.
Small changes in protocol can prove costly, and this rendition of the ACA is no exception. For more on the Affordable Care Act or any other payroll-related needs, call Abacus Payroll at (856) 667-6225.
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