A few weeks ago, we looked at the tax aspects of the Affordable Care Act, otherwise known as Obamacare, which elicited a number of questions, one of which was how the new health care initiative was going to affect businesses?
On the plus side, there will be tax credits for small businesses that are defined as those with 25 employees or less having an average annual wage of $50,000 or less where the tax credit will be equal to 50 percent of nonelective contributions made by the company on behalf of employees for health insurance premiums. These same businesses would also receive a tax credit equal to 35 percent of payroll taxes, which include Social Security and Medicare taxes.
Because of sequestration, the current small business tax credit, which remains in effect until tax year 2014, is 35 percent of nonelective premium contributions by the employer for for-profit companies, and up to 25 percent of nonelective premium contributions made by nonprofit 501(c)(3) organizations, provided that the employer pays at least 50 percent of employees’ premiums.
Beginning with 2014, eligible employers, those with a maximum 25 full-time employees and average wages of $50,000 or less, will be eligible for increased tax credits. For-profits can receive up to 50 percent of the employer’s premium contributions and nonprofits up to 35 percent of employer’s premium contributions provided the employer purchases the insurance through the state exchange, the Hawaii Health Connector.
The premium tax credit increases in 2014 for eligible small employers who obtain their small group coverage through the Hawaii Health Connector. If not purchased through the exchange, the credit remains at 35 percent and 25 percent, respectively.
Employers with more than 250 employees, that is, those who must file 250 or more W-2s, were required to disclose the value of the employer provided health insurance coverage as an informational item beginning in tax year 2011. Nondisclosure may result in a penalty of anywhere from $30 to $100 per misfiled W-2 form.
The cost of that annual coverage is to be reported in “Box 12” of the W-2 form and the code will be “DD.”
The Affordable Care Act does not require employers with less than 50 full-time equivalent employees to provide health insurance to workers. The “Pay or Play” requirements require “large” employers, those with 50 or more full-time equivalent employees, to offer, but not cover, health insurance to “full-time” employees who average 30 or more hours per week in a calendar month. There is no requirement that health insurance be offered or provided to “part-time” employees, who average less than 30 hours a week in a calendar month.
Beginning in early 2015, employers will be required to report information regarding their health plans to the Internal Revenue Service. The reporting is designed to aid enforcement of the “Pay or Play” penalty. The revenue service has not issued proposed regulations on the employer requirements under IRS Code Section 6056, but did issue requests for comments in 2012-13.
The general reporting requirements will include the name and Employer Identification Number of the applicable large employer and the date the return is filed. The report will also require certification that the applicable large employer offers full-time employees, and their dependents, the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan and certification of the duration of any waiting period, as defined in IRS Code Section 6056(b)(2)(C), with respect to such coverage, the months when coverage under the plan was available, the monthly premium for the lowest cost option in each enrollment category under the plan, and the employer’s share of the total allowed costs of benefits provided under the plan.
Employers must report the number of full-time employees for each month of the calendar year, and report for each full-time employee, the name, address, and his or her Taxpayer Identification Number and the months, if any, during which the full-time employee, and any dependents, were covered under the eligible employer-sponsored plan. Other information required by the Secretary of the Treasury must also be included. Those employers with more than 50 employees must provide coverage for all full-time employees or be subject to a fee.
While the tax credit will be available beginning in 2014, many of the reporting requirements have been postponed because of the complexity in complying with them.
Lowell L. Kalapa is president of the Tax Foundation of Hawaii.