While we’ve all heard over and over that the Affordable Care Act (ACA) will be repealed (and probably replaced) with our new administration, today the ACA is still in effect. While we can speculate (and hope for) certain changes to the ACA, no one really knows what those changes may be so, at this time, we must continue to operate according to the regulations as they are today. Below is a reminder of some of the more important aspects of the ACA as they relate to small employers – those typically with fewer than 50 full time employees.
Reimbursements for an Employee’s Cost of Individual Health Insurance
Prior to January 1, 2014, an employer could reimburse an employee (or the employee’s insurance company) for the cost of their individual health insurance policy premiums (i.e., an insurance policy that is not issued under an employer-sponsored group health plan) and these reimbursements were not taxable to the employee.
Now, employers should no longer reimburse the employee or the employee’s insurance provider for the premiums of an employee’s individual health insurance policy. If, after January 1, 2014, an employer continues these reimbursements, a $100 penalty, per day, per employee, or $36,500 per employee (under Section 4980D), is applicable. This was further confirmed with IRS Notice 2015-17.
If, as the employer, you want to continue to assist your employees with obtaining their own individual health insurance policy while avoiding this $100/day penalty, you have a couple of options – one of which was introduced December 13, 2016 with the 21st Century Cures Act:
- Consider establishing your own employer-sponsored group health insurance plan;
- Increase the employee’s base pay without any restrictions on the use of this additional pay (i.e., no requirement to be used for insurance premiums)
- Establish a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). A more detailed description of this option was provided in my previous article. In summary, if small employers meet certain conditions, they can contribute dollars to an account for their employees for which they can pay for certain medical expenses – including individual health insurance policies.
Are you self-insured for health insurance or considering self-insuring?
If you are an employer that is self-insured for health insurance, regardless of the number of employees, you must comply with the IRS-required information reporting. In addition, employers that are self-insured must also pay two separate fees related to the number of covered lives under their health insurance plan.
- PCORI (Patient Centered Outcomes Research Institute) fee
- Fee is effective for policy years ending after September 30, 2012 through September 30, 2019.
- The fee is based on the number of covered lives during the policy year multiplied by the applicable fee for the year.
- Fees
- $2.08 per covered life for policy years ending before September 30, 2015
- $2.17 per covered life for policy years ending before September 30, 2016
- $2.26 per covered life for policy years ending before September 30, 2017
- Fees
- The fee is reported annually using IRS Form 720, Quarterly Federal Excise Tax Return, with payment made via the IRS Electronic Funds Payment System. Fee and Form 720 is due on July 31st of the year following the last day of the policy or plan year.
This fee was effective for 2014 through 2016 only, and was reported and paid annually on pay.gov. The fees were $63, $44, and $27 per covered life for the benefit years 2014, 2015 and 2016, respectively. Employers were required to submit their covered life counts by November 15th of the benefit year and remit the fee in January (it was possible to split payment of the fee with a majority of the fee due January 15 and the remainder due November 14).
- IRS Form 1094-B and 1095-B reporting requirements for small employers in 2016
- Self-insured employers (regardless of the number of employees) must provide
each full-time employee (30+ hours/week) a 2016 Form 1095 by March 2, 2017. - Form 1095-B will provide health insurance coverage information for the employee and their covered dependents. Employees will use this information when preparing their individual income tax returns.
- Employers will submit these Form 1095-Bs to the IRS (just as they do their W-2s and 1099s) using Form 1094-B as the transmittal form.
- Note that if you are considered part of a controlled group you may be required to complete the more robust Form 1095-C in place of the Form 1095-B.
- Self-insured employers (regardless of the number of employees) must provide
You may be eligible for a tax credit.
Although this credit has been available since tax years that began after 2009, there was a significant change to who is now eligible for the credit. For tax years beginning after 2013, you are only able to claim the Small Employer Health Insurance Premium Credit if you obtain your employer-sponsored group health insurance through a Small Business Health Options Program (SHOP) Marketplace. If employer-sponsored health insurance is obtained through the SHOP Marketplace you will be provided a “Marketplace Identifier.” This identifier will need to be entered on Form 8941, Credit for Small Employer Health Insurance Premiums to show you are eligible for the credit.
The basics of the credit calculation remain the same; however, there are two significant changes that need to be pointed out.
- The potential credit increases to 50% of premiums paid, instead of 35% in prior years (percentage is less for not-for-profit organizations); and
- The credit is only applicable for two consecutive tax years.
As a reminder, for purposes of this credit, a small employer is one that has fewer than 25 full time equivalents (FTEs) with average annual wages less than $52,000 per FTE.
Stacey Huff is the Advisory Services Director at MCM CPAs & Advisors, where she works closely with the firm’s HR consultants. Her practice expertise is currently in tax compliance as it relates to the Affordable Care Act, and her experience also includes retirement plan administration and not-for-profit tax compliance and consulting.
Academy Guest Blogger
American Academy of Estate Planning Attorneys, Inc.
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San Diego, California 92123
Phone: (800) 846-1555
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- Building Effective Teams - November 24, 2017
- Affordable Care Act: Awareness is Key for Employers - February 24, 2017
- 21st Century Cures Act Provides Options for Small Businesses - January 27, 2017
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