Dear Tom and Alan: I have a small business and am wondering if I have to abide by the new ACA rules.
What are the new ACA rules? I have a few employees covered under our group medical plan. Too much for me to research with all the other California employers and Workers’ Compensation rules. I need a professional to understand all the red tape.
Tom: Well, Red, here’s the skinny. Beginning on Jan. 1, 2016, if you have fewer than 100 full-time employees, you are NOT mandated to cover your employees that work 30-plus hours per week. However, if you do decide to offer coverage, you must comply with the requirements of the Affordable Care Act (ACA). The first leg of the ACA is the plan must be “affordable.” According to the Internal Revenue Service, a plan is affordable if the employee rate is less than 9.5 percent of that employee’s household income.
Because the IRS knows it is difficult to ascertain the household income (including spouse and dependents that may bring in additional income), there is a “safe harbor” option. The calculation is based on wages paid to the employee as reported on his/her W2.
In years past, some bosses had employees get outside individual health plans and reimburse them for the expense.
Don’t do that! The ACA prohibits it and the IRS could impose a fine. If the employee should happen to go through Covered California, any extra money you give could reduce or eliminate a subsidy.
One other worry coming up for overly generous employers: the “Cadillac Tax.” If you offer and pay for your employees’ low- or no-deductible plan, you could be subject to yet another penalty. Final regulations on the Cadillac Tax are pending. They are supposed to be around 2018.
Al: On a slightly cheerier note, the ACA also brings with it the possibility of tax credits for some small employers. First, the employer must contribute at least 50 percent of the employee premium. Second, the plan must be established through Covered California. Third, the credit is 50 percent of premium expenses for a period of two consecutive years.
The tax credit depends on the number of full-time equivalent employees (FTEs) and the amount the employer contributes. Businesses with fewer than 25 FTEs and with an average salary of less than $50,000 annually, will be eligible for the tax credit. In order to get the maximum tax credit, the business would have fewer than 10 FTEs with average annual salary of less than $25,000.
Here’s an example from the Covered California website: Total annual wages for 10 FTEs — $250,000; total annual health insurance costs — $70,000; year one credit — $35,000; year two tax credit — $35,000; year three tax credit – 0. This illustration was for a beauty shop (I don’t think it’s in Napa).