Affordable Care Act: What Employers with Fewer than 50 Employees Need to Know

Affordable Care Act: What Employers with Fewer than 50 Employees Need to Know

As an employer, the number of employees you have during the last calendar year determines which parts of the health care law apply to your organization. If you are an employer with fewer than 50 full-time employees, including full-time equivalent employees, here are three things to know about how the health care law affects you.

Information Reporting

If you offer employer-sponsored self-insured health coverage to your employees, you will use Form 1095-B, Health Coverage Information Return to report information to covered individuals about each person enrolled in coverage. The deadline for filing this form with the IRS is February 28, 2017, or March 31, 2017 if filing electronically. The deadline for furnishing this form to the covered individual is March 2, 2017, which is a 30-day extension from the original due date of January 31.

Tax Credit: You may be eligible for the small business health care tax credit if you meet all of the following conditions. You:

o             cover at least 50 percent of employees’ premium costs
o             have fewer than 25 full-time equivalent employees
o             pay average annual wages per full-time equivalent employee of less than $52,000 in tax year 2016
o             purchase coverage through the SHOP Marketplace

Small Business Health Care Tax Credit: Questions and Answers

Federal law gives a tax credit to eligible small employers who provide health care coverage to their employees. Questions and answers provide information on the credit for tax years beginning in 2014.

Shared Responsibility Payment

  • If you employ fewer than 50 full-time employees, including full-time equivalent employees, you are not subject to the employer shared responsibility provisions.

Employer Shared Responsibility Provisions

Under the Affordable Care Act’s employer shared responsibility provisions, certain employers (called applicable large employers or ALEs) must either offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees (and their dependents), or potentially make an employer shared responsibility payment to the IRS.  The employer shared responsibility provisions are sometimes referred to as “the employer mandate” or “the pay or play provisions.”  The vast majority of employers will fall below the ALE threshold number of employees and, therefore, will not be subject to the employer shared responsibility provisions.

The employer shared responsibility provisions are first effective on January 1, 2015, but transition relief from certain requirements is available for 2015.

The same employers that are subject to the employer shared responsibility provisions (that is, ALEs) also have information reporting responsibilities regarding minimum essential coverage offered to employees.  These responsibilities require employers to send  reports to employees and to the IRS on new forms the IRS created for this purpose.  An employer that sponsors self-insured health insurance coverage – whether or not the employer is an ALE – has insurer information reporting responsibilities as a provider of minimum essential coverage. Also see our Q&A pages for offers of health insurance coverage by employers (Section 6056) and information reporting by health coverage providers (Section 6055).

Which Employers are Subject to the Employer Shared Responsibility Provisions?

ALEs are subject to the employer shared responsibility provisions.  Whether an employer is an ALE in a particular calendar year depends on the size of the employer’s workforce in the preceding calendar year.  To be an ALE for a particular calendar year, an employer must have had an average of at least 50 full-time employees (including full-time-equivalent employees) during the preceding calendar year.  So, for example, an employer will use information about the size of its workforce during 2016 to determine if it is an ALE for 2017.

All types of employers can be ALEs, including tax-exempt organizations and government entities.

If an ALE is made up of multiple employers (called applicable large employer, or ALE, members), the ALE members are aggregated, that is considered together, in determining whether the group of employers is an ALE.  Generally each individual ALE member is responsible for its own employer shared responsibility payment.

Transition relief is available for 2015 regarding the determination of ALE status.

For more information on how to determine if an employer is an ALE, including the aggregation rules, relevant definitions and rules for new employers, see Determining If You Are an Applicable Large Employer. For more information on ALE status, see the Employer Shared Responsibility Provisions and section 54.4980H-2 of the ESRP regulations.

Under What Circumstances Will an Employer Owe an Employer Shared Responsibility Payment?

An ALE member may choose either to offer affordable minimum essential coverage that provides minimum value to its full-time employees (and their dependents) or potentially owe an employer shared responsibility payment to the IRS.  Depending on its decisions about offering minimum essential coverage to its full-time employees and their dependents, an ALE member may be subject to one of two potential employer shared responsibility payments.

For purposes of the employer shared responsibility provisions, a dependent is an employee’s child (including a child who has been legally adopted or placed for adoption) who has not reached the age of 26.  Spouses are not considered dependents and neither are stepchildren or foster children. For more information, see the Description of Payments page.

An ALE member will owe the first type of employer shared responsibility payment if it does not offer minimum essential coverage to at least 95 percent of its full-time employees (and their dependents), and at least one full-time employee receives the premium tax credit for purchasing coverage through the Health Insurance Marketplace.  Two types of transition relief are available for this type of employer shared responsibility payment.  Even if an ALE member offers minimum essential coverage to at least 95 percent of its full-time employees (and their dependents), it may owe the second type of employer shared responsibility payment for each full-time employee who receives the premium tax credit for purchasing coverage through the Marketplace.  In general, a full-time employee could receive the premium tax credit if: (1) the minimum essential coverage the employer offers to the employee is not affordable; (2) the minimum essential coverage the employer offers to the employee does not provide minimum value; or (3) the employee is not one of the at least 95 percent of full-time employees offered minimum essential coverage.

The terms “affordable” and “minimum value” have specific meanings under the Affordable Care Act. For more information on how an employer knows whether the minimum essential coverage that it offers provides minimum value or is affordable, see our Minimum Value and Affordability Requirements information.

 

How Are the Employer Shared Responsibility Payments Calculated?

An ALE member may be subject to one of two employer shared responsibility payments, but not both, and the two types of payments are calculated differently.  An ALE member may not be subject to both types of payments regardless of the decisions it makes about offering or not offering minimum essential coverage to its full-time employees (and their dependents).

In general, an ALE member that does not offer minimum essential coverage to at least 95 percent of its full-time employees (and their dependents) will be liable for the first type of employer shared responsibility payment if at least one full-time employee receives the premium tax credit for purchasing coverage through the Marketplace. On an annual basis, this payment is equal to $2,000 (indexed for future years) for each full-time employee, with the first 30 employees excluded from the calculation.  This calculation is based on all full-time employees (minus 30), including full-time employees who have minimum essential coverage under the employer’s plan or from another source.  There is transition relief regarding the calculation of this payment and the percentage of full-time employees that need to be offered minimum essential coverage for the employer to avoid this payment for 2015.

In general, an ALE member that does offer minimum essential coverage to at least 95 percent of its full-time employees (and their dependents) will be liable for the second type of employer shared responsibility payment if at least one full-time employee receives the premium tax credit for purchasing coverage through the Marketplace.  Generally, a full-time employee will receive the premium tax credit because the minimum essential coverage offered was not affordable, did not provide minimum value, or because the employee was not one of the at least 95 percent of full-time employees offered minimum essential coverage.  On an annual basis, this payment is equal to $3,000 (indexed for future years) but only for each full-time employee who receives the premium tax credit. The total payment in this instance cannot exceed the amount the employer would have owed had the employer not offered minimum essential coverage to at least 95 percent of its full-time employees (and their dependents).

For either type of employer shared responsibility payment to apply to an ALE member, at least one full-time employee must receive the premium tax credit for purchasing coverage through the Marketplace.

Although expressed here as an annual number, each type of employer shared responsibility payment is calculated on a monthly basis and is not a flat amount for all ALE members. Rather, the employer shared responsibility payment amount will depend on either the number of full-time employees of the ALE member (for an employer not offering coverage) or on the number of full-time employees of the ALE member who receive the premium tax credit for purchasing coverage through the Marketplace (for an employer offering coverage that is not affordable or does not offer minimum value).

 

Identifying Full-Time Employees

Determining which employees are full-time employees is central to the employer shared responsibility provisions.

An employer must identify its full-time employees to determine:

If it is an ALE, and, therefore, subject to the employer shared responsibility provisions;

To whom it must offer minimum essential coverage to avoid an employer shared responsibility payment; and

The amount of any potential liability for an employer shared responsibility payment. Note that an employer is not obligated to calculate its liability, and should not make a payment without first being contacted by the IRS.

In general, for purposes of the employer shared responsibility provisions, a full-time employee is, for a calendar month, an employee employed on average at least 30 hours of service per week, or 130 hours of service per month.  There are two methods for determining full-time employee status that apply for purposes of determining the amount of any potential liability under the employer shared responsibility provisions.

 

Note that the employer shared responsibility provisions in no way stop an employer from offering minimum essential coverage to more than just its full-time employees (and their dependents).

Transition Relief

The preamble to the employer shared responsibility regulations contains eight forms of transition relief for 2015 that apply to various aspects of the employer shared responsibility provisions. Detailed guidance for each form of transition relief for 2015 can be found in section XV.D of the preamble to the ESRP regulations. Also see our ESRP Questions and Answers.

More information about the employer shared responsibility provisions is available in our Questions and Answers. More information about the information reporting requirements for ALEs is available in these Questions and Answers. More information about the information reporting requirements for insurers including self-insured employers is available in these Questions and Answers

The Employer Shared Responsibility Provision Estimator helps employers understand how the provision works and learn how the provision may apply to them. Employers can use the estimator to determine:

The number of full-time employees, including full-time equivalent employees,

Whether an employer might be an applicable large employer, and

For employers that are an applicable large employer, an estimate of the maximum amount of the potential liability for the employer shared responsibility payment that could apply, based on the number of full-time employees reported if an employer fails to offer coverage to its full-time employees.

Applicable large employers can find complete list of resources and the latest news at the Applicable Large Employer Information Center

Employers or health coverage providers can access and review these recorded webinars at anytime to better understand how the health care law may affect their organization. Each of the following ACA videos provides about 40 minutes of detailed information on the specific tax provision mentioned in the title.

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