If you’re part of the 95% of private businesses that employ fewer than 50 workers, you may be wondering how new healthcare laws will impact small business owners in 2015. Since the Patient Protection and Affordable Care Act (ACA) was enacted in March 2010, debates have abounded around what the law will mean for both large and small employers.
Whether you’re an independent freelancer or a family-owned business with a handful of employees, the size and structure of your company will determine which, if any, provisions you’ll be subject to under the new healthcare laws. Below is a brief overview of what tax-reporting requirements to expect and the provisions that have been implemented so far under the Affordable Care Act.
As a self-employed consultant, freelancer or entrepreneur without employees, you may be subject to the Individual Shared Responsibility Provision. The “Individual Mandate,” which went into effect January 1, 2014, requires you to have qualifying healthcare or minimal essential coverage, file for a healthcare coverage exemption, or make a shared responsibility payment when filing your 2014 federal income tax return. In other words, as a business owner with zero employees, you have the following filing options under the new healthcare law:
- If you (and your dependents) have basic healthcare coverage, simply check the box indicating you received coverage from the Health Insurance Marketplace, a government-sponsored program or qualifying source for 2014. See the IRS website for a list of the types of coverage that qualify as minimum essential coverage.
- If you were without health insurance coverage, you have the option to file a health coverage exemption using Form 8965. For example, you may be granted an exemption if you were without coverage for only three months out of the year, if the cost of the health plan was more than 8% of your actual wages, or if you were living outside of the U.S. for at least 330 days during a 12-month period. Some exemptions can be accessed through the Health Insurance Marketplace, while others can be claimed on your tax return. Refer to the IRS website for a complete list of qualifying exemptions.
- If you were without healthcare coverage and do not qualify for an exemption, you’ll need make an individual shared-responsibility payment when filing your return. For 2014, the annual payment can be one of two options. The first option is to pay 1% of your household income that is over the tax return filing threshold (i.e. the minimum amount of gross income required to file a tax return) for your filing status. The second option is to pay $95 per adult, $47.50 per child or make a maximum payment of $285 per family. The Individual Shared Responsibility Provision page on the IRS website, as well as this fact sheet published by the U.S. Department of Treasury, has more information on reporting healthcare coverage on your tax return.
Additionally, if you’re a single filer, and your compensation, wages and self-employment income are above $200,000 (or greater than $250,000 if you are married and filing jointly), you’re also subject to an additional Medicare tax of 0.9%. See this Q&A page on the IRS website regarding the additional Medicare tax and individuals who are liable.
Keep in mind that if you have what the IRS considers a “moderate income” and you decide to buy health insurance through the Marketplace, you may be able to receive a premium tax credit. However, you must purchase health coverage through the Marketplace during the open enrollment period to qualify.
Small Businesses With Employees
If you’re a small business owner who’s interested in purchasing a health plan for your employees, then you’ll buy coverage through the Small Business Health Options Program (SHOP) or health insurance “exchange.” SHOP exchanges are online marketplaces designed specifically for small businesses and can be accessed through Healthcare.gov or your state’s marketplace. The SHOP Marketplace allows employers with 50 full-time employees or fewer to purchase and enroll in an insurance plan via the web, over the phone or with a paper application.
Whether or not you qualify for the tax credits to help offset the cost of premiums will be determined by your number of full-time equivalent employees (FTEs). Moreover, any seasonal employees and contractors you hire, as well as individual business owners, do not contribute towards your FTE number. In addition to your FTE number, the tax credits you receive will also be based on your employees’ average annual wages. The FTE employee calculator is a handy tool that can help you verify your company’s number of FTEs.
Companies With Under 25 Full-Time Employees
Though the largest tax credits are available for companies with fewer than 10 FTEs who have average salaries of $25,000 or less, companies with fewer than 25 FTEs are also eligible for the Small Business Health Care Tax Credit. In other words, the smaller your business, the larger your tax break.
Starting January 1, 2014, small employers with fewer than 25 employees can receive tax credits amounting to up to 50% of their contributions toward premiums. For non-profit (i.e. tax-exempt) organizations, the tax credit amount is up to 35% of premiums paid on behalf of employees.
To qualify for the Small Business Health Care Tax Credit, you must purchase your employees’ health insurance through the SHOP exchange. Additionally, you’ll need to meet the following requirements to be eligible for tax credits under the ACA:
- You must enroll your full-time employees through your state’s SHOP exchange.
- You must pay for at least 50% of your employees’ healthcare premiums.
- Your employees’ average wages must be less than $50,000.
The SHOP Tax Credit Estimator is available to estimate the credit amount you would receive based on your FTE number, average employee wages and premium contribution. Furthermore, tax credits are retroactive and can be claimed for any year you’ve contributed to Marketplace insurance premiums since 2010. If you qualify for a tax break, use IRS Form 8941 and follow the instructions for calculating the credit amount for small employer health insurance premiums.
Companies With 25 to 50 Full-Time Employees
If you have 50 or fewer full-time employees or FTEs, you’re still eligible to use the SHOP Marketplace to purchase a health plan for your workers. Furthermore, if you have fewer than 50 FTEs, you’re exempt from the employer mandate. However, you’ll be unable to access the same tax credits as those companies with fewer than 25 employees. For example, only businesses with under 25 FTEs are eligible to receive the Small Business Health Care Tax Credit.
Companies With More Than 50 Full-Time Employees
One area of the ACA legislation that has gotten plenty of attention from both the media and general public is the Employer Shared Responsibility Provision, or “employer mandate.” The employer mandate, which is set to begin in 2015, requires all companies with 50 or more full-time and FTEs to provide affordable health insurance with a minimal level of coverage to 95% of their full-time workers and dependents, or they are forced to pay a penalty fee. Employers are also still liable if they offer coverage to 95% of their workers but at least one full-time employee receives a premium tax credit for buying individual health insurance via their state’s marketplace.
For 2015, the Shared Responsibility Payment is equal to the number of full-time workers employed for the year (minus 30, since the first 30 FTEs are exempt from this penalty) multiplied by $2,000. So if your company employed 55 full-time workers in 2014, your employer shared responsibility payment would be based on 25 full-time workers.
Additional ACA Resources
Don’t hesitate to utilize the numerous online and offline resources the IRS and the Healthcare.gov sites offer for self-employed professionals and small business owners. If you need in-person assistance, you can also visit localhelp.healthcare.gov or navigate to your state’s healthcare exchange to figure out the coverage that’s right for your company and budget. The Marketplace’s call center (1-800-318-2596) is available 24 hours a day, seven days a week if you need further guidance on the provisions and tax implications of the ACA.