Legislative Alert: Patient Protection and Affordable Care Act Tax Implications Impacting Employers
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The Employer Mandate
As of January 1, 2014, Patient Protection and Affordable Care Act requires employers, known as the employer mandate, with more than 50 full-time equivalent employees to offer health insurance coverage to their employees. This limits annual cost-sharing to the high-deductible plan limit, limits the annual deductible for small group market plans to $2,000 for individuals and $4,000 for families, and does not require cost-sharing for preventive services or immunizations.
If a business has 50 or more full time employees and one or more of its employees receive a government subsidy to help purchase health insurance from a state Exchange, then the business will pay a penalty. An employee is eligible for a premium subsidy if he or she meets two conditions: the employee’s household income must be less than 400% of the Federal Poverty Level and the employee’s portion of the insurance premium on the employer’s plan exceeds 9.5% of the employee’s household income.
If a business owes an employer mandate penalty: if the business does not provide health insurance to its employees, the company's annual penalty equals [the total number of employees in the firm (subsidized and unsubsidized) minus 30] x $2,000; and if the business does provide health insurance and its annual penalty equals the lesser of [the number of subsidized employees] x $3,000 OR [the number of employees (subsidized and unsubsidized) minus 30] x $2,000.
Small Business Health Care Tax Credit
Small Business credit went into effect in 2010 andtTo qualify, a business must offer health insurance to its employees as part of their compensation and contribute at least half the total premium cost. The full amount of the credit is available only to an employer with 10 or fewer full time employees and whose employees have average annual full-time equivalent wages from the employer of less than $25,000. Employers with more full time wmployees or with higher average annual wages may still qualify for a smaller credit. In order to claim any amount of the credit, the business must have no more than 25 full time employees, and the employees must have annual full-time equivalent wages that average no more than $50,000.
W-2 Reporting for Large Employers
Beginning with the 2012 tax year, PPACA requires that employers that issue more than 250 W-2s report the cost of employer-provided coverage on W-2s issued in 2013. The entire cost of the benefits is to be included in the W-2 – both the employee portion and the employer portion. This amount will not include any salary reduction contributions made to flexible spending accounts, health savings accounts or Archer MSAs. This reporting is for informational purposes only; PPACA did not alter the tax-exempt nature of these benefits.
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