You may have heard that under the Affordable Care Act businesses with 50 or more employees will be fined for not providing health insurance benefits.
That provision remains in place, but on July 2 the Obama administration extended the deadline for covering employees to Jan. 1, 2015. That means larger small businesses have a year and a half to either set up employee insurance coverage or pay large annual fines — $2,000 per FTE.
FTE means “full-time equivalent,” which is defined as someone who works 30 hours or more per week or 120 hours or more per month. In other words, if you had hoped to avoid the fine by cutting back on FTEs, that probably won’t work: The feds are counting hours worked, not warm bodies. You do have the choice to calculate your FTEs on a six- or 12-month basis, so be sure to consider both options to determine which makes more sense for your bottom line.
Two important facts to note: 1) If you are fined, the first 30 FTEs are subtracted from the calculation of your fine, so you only pay based on the overage; and 2) If the insurance you provide is too expensive — that is, if it costs employees more than 9.5 percent of their MAGI, or Modified Adjusted Gross Income (Adjusted Gross Income + exempt interest income)
— so that your employees qualify for government subsidies to help pay for it, you will be fined $3,000 per government-subsidized employee.
For businesses with fewer than 25 employees that cover at least 50 percent of their employees’ health insurance costs, there are tax credits [PDF] available.
The credit may be applied backward or forward to other years, starting with 2010, as needed.
The credit works on a sliding scale — nonprofits receive up to 25 percent credit for the years 2010 to 2013 and 35 percent for 2014 and beyond; for-profits receive up to 35 percent and 50 percent, respectively. In order to qualify, covered employees must average under $50,000 annual income. Unfortunately, this credit is not offered to sole proprietors.
Even if you already offer health insurance to your employees, note that the Affordable Care Act, once fully implemented, will require you to make some changes. For example, all businesses must track and report employee insurance coverage data to the IRS — who is covered, how much coverage, when coverage began, and so forth. The government is trying to simplify its requirements as much as possible. Final details have yet to be announced, so putting systems in place to meet them is guesswork for now.
Meanwhile, here are some websites and tools to help you prepare for the Affordable Care Act (ACA):
Help Your Business Thrive
Get our Newsletter