Bradley & Riley PC

The Supreme Court's historic decision last month upholding the Affordable Care Act focused on the constitutionality of the so-called "individual mandate". The "employer mandate" provision of the Act, while it has grabbed fewer headlines, has proven to be a source of confusion. A recent Wall Street Journal survey of CEOs of small companies, for example, found that fully two-thirds did not know whether their companies qualified for the Act's health care tax credit, which took effect in 2010.1 Now that the constitutional uncertainty has been resolved, it's time for employers to learn the basics of compliance and how to maximize their financial position under the new regime.

Who's Subject to the Affordable Care Act?

The Act's employer mandate goes into effect in 2014. It applies to employers with 50 or more full-time equivalent employees; those with fewer than 50 full-time equivalent employees are exempt. To determine whether your firm reaches this threshold, start with number of full-time employees. To calculate full-time equivalents, total the hours worked by all part-time employees in a given month, then divide by 120. Finally, add these full-time equivalents to full time employees. If your total falls below 50, your firm is likely exempt from the Act. The White House estimates that this exemption applies to 96% of all U.S. firms.2

What does the Affordable Care Act Require?

Employers with 50 or more full-time equivalent employees who do not offer health insurance will be required to pay a "shared responsibility" tax penalty of $2,000 per full-time employee who obtains a tax credit to obtain insurance through a Health Insurance Exchange, excluding the first 30 full-time employees. Given its estimate that 96% of large firms already offer health insurance, the White House estimates that only 0.2% of all U.S. firms will face "shared responsibility" tax penalties. The Act prohibits enrollment waiting periods greater than 90 days. The Act also assesses an excise tax on "Cadillac" health plans (effective 2018).

Is My Firm Eligible for a Small Business Tax Credit?

Since 2010, the Act has provided tax credits for firms with fewer than 25 full-time equivalent employees and average annual wages less than $50,000, if the firm pays at least 50% of total premium costs. Employers with 10 or fewer full-time equivalent employees and average annual wages of $25,000 qualify for a maximum credit equal to 35% of the employer's contribution. Beginning in 2014, the maximum credit increases to 50% (for up to two years) of the employer's contribution if the employer purchases coverage through a Health Insurance Exchange. These federal credits are in addition to existing state tax credits.

How Do We Prepare?

All firms, large or small, will face administrative obligations in connection with the Affordable Care Act and need to prepare now. Firms that may be subject to the Act's "shared responsibility" tax penalties, in particular, or firms that are interested in exploring whether they are eligible for small business tax credits, should immediately consult with legal counsel. Firms should also consult a legal professional before implementing changes to existing coverage, as those changes can have significant consequences under the Act. A qualified legal professional can guide your firm through review and analysis of your firm's status with regard to the Act, ensuring your firm is in compliance while protecting your firm's bottom line.

 

"Few Small Firms Take Advantage of Health-Law Benefits", June 28, 2012, available athttp://online.wsj.com/article/SB10001424052702304830704577492841294091710.html (last accessed July 2, 2012).

http://www.whitehouse.gov/files/documents/health_reform_for_small_businesses.pdf

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