The Patient Protection and Affordable Care Act (AKA Obamacare) enacted by Congress in 2010 changed the way we view healthcare. Both big and small business alike were affected by this act. For instance, big businesses defined as employees with over 50 employees, are required to provide 95% of their employees a minimum essential coverage. If no coverage is provided the employer must pay $2,000 per employee after excluding the first 30 employees. However, if a coverage is provided that does not meet the minimum essential coverage, a lesser penalty is assessed. Employees can contribute to their coverage up to 9.5% of household income.
Most of the attention of the act is given to the business mandate which affects businesses with over 50 employees and the individual mandate which affects individuals. Very little attention is given to the effect on small business owners with employees of less than 50.
Changes affecting small employers with employees
In the past employers were able to pay for employees health insurance and take a tax deduction for this benefit, however under the ACA market reforms, you may be subject to penalties of up to $100 per employee per day for doing this as this does not comply with ACA market reforms.
Under the reform, an employer is not permitted to reimburse individual healthcare insurance premiums on a pretax basis. You are susceptible to penalties if you continue to do this. According to the Q&A published by the IRS in April 2015, the IRS stated that,
“Under IRS Notice 2013-54, such arrangements are described as employer payment plans. An employer payment plan, as the term is used in this notice, generally does not include an arrangement under which an employee may have an after-tax amount applied toward health coverage or take that amount in cash compensation. As explained in Notice 2013-54, these employer payment plans are considered to be group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Notice 2013-54 clarifies that such arrangements cannot be integrated with individual policies to satisfy the market reforms. Consequently, such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code”.
Any plan established by the small business owner must be designed to comply with the affordable care act market reforms, as well as existing federal regulations for ERISA and HIPAA. To comply plans must:
- cover unlimited preventive health services without cost sharing
- Have no annual or lifetime limit on essential health benefits
On the bright side, small business owner who have no employees are still able to take a self-employment health insurance deduction on their personal tax return. However, be sure you meet the demands of the mandate if providing health insurance to your employees. Finally, due to the complexity of the act, consult a professional to discuss your personal situation.
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