By Lowell L. Kalapa
(Released on 11/24/13)
A few weeks ago we looked at the tax aspects of the Affordable Care Act (ACA) otherwise known as “Obamacare” which elicited a number of questions, one of which was how was the new health care initiative going to affect businesses?
On the plus side, there will be tax credits for small businesses that are defined as those with 25 employees or less having an average annual wage of $50,000 or less where the tax credit will be equal to 50% of non-elective contributions made by the company on behalf of employees for health insurance premiums. These same businesses would also receive a tax credit equal to 35% of payroll (Social Security and Medicare) taxes.
Because of sequestration, the current small business tax credit (in effect until tax year 2014) is 35% of non-elective premium contributions by the employer for for-profit companies, and up to 25% of non-elective premium contributions made by nonprofit 501(c) organizations, provided that the employer pays at least 50% of employees’ premiums.
Beginning with 2014, eligible employers (having 25 full-time employees or less, and average wages of $50,000 or less) will be eligible for an increased tax credit of up to 50% of the employer’s premium contributions (for for-profits) and up to 35% of employer’s premium contributions (for nonprofits) provided THE EMPLOYER PURCHASES THE INSURANCE THROUGH THE STATE EXCHANGE (Hawaii Health Connector).
The premium tax credit increases dramatically in 2014 for eligible small employers who obtain their small group coverage through the Hawaii Health Connector. (If not purchased through the Exchange, the credit remains at 35%/25% respectively).
Employers with more than 250 employees, that is, those who must file 250 or more W-2’s, are required to disclose the value of the employer provided health insurance coverage as an informational item beginning for tax year 2011. Non-disclosure could result in a penalty of anywhere from $30 to $100 per misfiled W-2 form.
The cost of that annual coverage is to be reported in “Box 12” of the W-2 form and the code will be “DD.”
The ACA does not require employers who employ less than 50 full-time equivalent employees to provide health insurance to employees. The “Pay or Play” requirements require “large” employers with 50 or more full-time equivalent employees to OFFER (not cover) health coverage to those “full-time” employees who average 30 hours or more per week in a given calendar month. There is no requirement that health insurance be offered or provided to “part-time” employees who average less than 30 hours a week in any calendar month.
There will be employer reporting requirements beginning in early 2015 which will require employers to report information regarding their health plans to the IRS. The reporting is designed to aid enforcement of the Pay or Play penalty. The IRS has not issued proposed regulations on the employer requirements under IRS Code Section 6056, but did issue requests for comments in 2012-13. The general reporting requirements will:
• Include the name and Employer Identification Number (EIN) of the applicable large employer;
• Include the date the return is filed;
• Certify whether the applicable large employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan and certify:
(1) The duration of any waiting period (as defined in §6056(b)(2)(C)) with respect to such coverage;
(2) The months during the calendar year when coverage under the plan was available;
(3) The monthly premium for the lowest cost option in each enrollment category under the plan; and
(4) The employer’s share of the total allowed costs of benefits provided under the plan. Employers must report the number of full-time employees for each month of the calendar year, and report for each full-time employee, the name, address, and taxpayer identification number (TIN) of the employee and the months (if any) during which the full-time employee (or any dependents) were covered under the eligible employer-sponsored plan. Other information required by the Secretary of the Treasury must also be included. Those employers with more than 50 employees must provide coverage for all full-time employees (defined as averaging 30 hours a week) or be subject to a fee.
While the tax credit will be available beginning in 2014, many of the reporting requirements have been postponed because of the complexity in complying with them.