ACA and Employers: How Workforce Size Affects Responsibilities

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It is the third year for reporting for the Affordable Care Act (ACA), and many new business owners may be wondering if there are any actions they need to take to ensure their business and employees are in compliance. Here’s what you need to know to help your clients sort out the details and, of course, help you implement the ACA provisions in your own firm.

The mandate that employers need to cover their employees with health insurance, or face a penalty, began to take effect in tax year 2015 and will cover additional employers in tax year 2016. Here’s a breakdown:

  • Employers with fewer than 50 workers are exempt and not subject to the employer shared responsibility (ESR) rules.
  • Employers with between 50 and 99 full-time employees are also liable for the ESR, beginning in tax year 2016. Employers with at least 100 full-time employees were liable for the ESR, beginning in tax year 2015.

Workforce Size

Determining whether you’re an applicable large employer (ALE) for the current year is based on average employee count for 12 months of the prior year. A full-time employee is an employee with at least 130 hours of service in a calendar month. To determine full-time equivalent (FTE) employees for each month, combine the number of hours of service for all non-full-time employees – up to 120 hours per employee – and divide the total by 120.

Employer Shared Responsibility Provision

An employer with at least 100 full-time employees is liable for the ESR if one of the following conditions exists:

  • The employer does not offer health coverage, or offers coverage to fewer than 95 percent (increased from 70 percent in 2015) of its full-time employees and dependents, and at least one of the full-time employees receives a premium tax credit.
  • The employer offers health coverage to at least 95 percent (increased from 70 percent in 2015) of its full-time employees and dependents, but at least one full-time employee receives a premium tax credit. This may occur because the employer did not offer coverage to that employee, or because the coverage the employer offered that employee was either unaffordable or did not provide minimum value.

Calculating the Penalty
Here are the conditions for calculating the penalty:

  • If an employer does not offer coverage to at least 95 percent of full-time employees, the ESR equals the number of full-time employees minus 30 (down from 80 last year), multiplied by 1/12 of $2,000, provided that at least one full-time employee receives a premium tax credit for that month.
  • If an employer offers coverage to at least 95 percent of its full-time employees, but has one or more full-time employees who receive a premium tax credit, the amount of payment for a month equals the number of full-time employees who receive a premium tax credit for that month multiplied by 1/12 of $3,000.
  • The amount of ESR payment for any calendar month is capped at the number of employer’s full-time employees for a month, minus 30 (down from 80 last year), multiplied by 1/12 of $2,000.

Source Documents

The following source documents will be used to support ACA computations that are continuing into tax year 2016 and have no changes planned from last year:

  • Form 1095-A, Health Insurance Marketplace Statement, issued by health insurance exchanges, confirms coverage, premiums and subsidies received to help pay for health insurance. This form is needed for accurate filing. If taxpayers underestimate their income and owe a portion of the subsidy back to the IRS, they may be able to reduce their household income and the amount owed by contributing money to a retirement account or health savings account.
  • Form 1095-B, Health Coverage Statement, may be issued by providers of minimum essential coverage, including self-insured employers. This form is distributed to those who have private health insurance, an employer plan and received government-sponsored health insurance, such as Medicare, Medicaid or TriCare. The form indicates whether the taxpayer, spouse and dependents had qualifying health coverage (minimum essential coverage) for some or all months during the year. Individuals with minimum essential coverage are not subject to the individual shared responsibility payment (ACA penalty).
  • Form 1095-C, Employer Provided Health Insurance Offer and Coverage Statement, may be distributed to those who receive health insurance through an employer with 50 or more employees. The form indicates whether the employer offered qualifying health coverage to an employee, a spouse and dependents for some or all months during the year.

As was the case in 2015, taxpayers do not need to attach or enter information from Forms 1095-B or 1095-C on their 2016 tax returns. This means that if you had non-marketplace health insurance during the 2016 tax year, these new forms will be for informational purposes only, and you’re not required to send in proof of health care coverage to the IRS. However, you should keep these documents with your other records. Other documentation serving as proof of coverage includes insurance cards, explanation of benefits’ statements from your insurer, and W-2 or payroll statements reflecting health insurance deductions.

Additional Details

Last year’s Protecting Americans From Tax Hikes (PATH) Act legislation suspends, for two years, two new taxes that were installed as part of ACA. Here are those two new taxes:

  1. The excise tax on medical devices, which was effective for sales after Dec. 31, 2012, won’t apply to sales between Jan. 1, 2016 and Dec. 31, 2017.
  2. The 40 percent excise tax on high-end health insurance plans, known as the Cadillac Tax, which would have applied beginning in 2018, will instead apply for tax years beginning after 2019.

For more information about the tax implications of the ACA and helpful guides, please visit the Intuit® Affordable Care Act Resource Center, part of the Intuit ProConnect™ Tax Pro Center.