By Rick Cooley, CPA
As you’ve heard, the new healthcare law contains many new tax provisions that impact employers of all sizes.
That said, understanding the size and structure of your workforce – whether it is small or large – will help you understand the details of the impact on your organization and navigate the complexities of the new law and comply with those parts that apply to your organization. Calculating the number of employees is particularly important for employers that have close to 50 employees. The following are questions you should be asking yourself:
Is my organization an Applicable Large Employer?
The number of employees that an organization has during the current year will determine whether the organization is an “applicable large employer” (ALE) for the following year. This is critical because the compliance and reporting for ALEs is much more involved – and the penalties for failure to comply can be onerous.
ALEs are generally those with 50 or more full-time or full-time-equivalent (FTE) employees. ALEs are required to offer their full-time employees and dependents affordable coverage that provides minimum levels of benefits.
Employers with fewer than 50 full-time or full time equivalent employees are not ALEs and are not required to offer coverage. However, if employers do provide health benefits, they are still subject to the increased reporting requirements discussed below.
How are full-time and full-time equivalent employees counted?
Full-time employees are those employees who, for a calendar month, worked an average of at least 30 hours per week or 130 hours of service during the calendar month, for at least 120 days in a calendar year. Full-time employees also include those employees that the employer expects to meet this threshold during the year.
Full-time-equivalent (FTE) employees are calculated by combining the number of hours of service for all non-full-time employees for the month but do not include more than 120 hours of service per employee. Divide the total by 120. Round this total down to the nearest whole number and you have your organization’s total FTE employees.
An employer need not offer minimum essential coverage to part-time employees. The calculation of FTE employees is only used to determine if the employer is an ALE.
Add the number of your full-time employees with your FTE employees to determine if your organization has more than 50 full-time employees. If you have more than 50 full-time employees, then your organization will be classified as an ALE and will be required to offer minimum essential coverage or pay the shared responsibility payment as discussed below.
What do I need to do if my organization is not an Applicable Large Employer?
There is no minimum coverage requirement, but there are still reporting requirements if you do offer employee coverage.
The health care law encourages small employers to consider offering coverage on their own or through the Small Business Health Options Program Marketplace. The law also includes incentives for small employers via the Small Business Health Care Tax Credit to encourage otherwise exempt small employers to offer coverage to their employees.
All employers that provide self-insured health coverage must file an annual return for individuals they cover and provide a statement to the covered individual. (See Information Reporting below.)
What do I need to do if my organization is an Applicable Large Employer?
ALEs are required to offer their full-time employees and their dependents affordable health coverage that provides for minimum levels of benefits.
All employers, including ALEs, providing coverage via self-insured plans must file an annual return for individuals they cover and provide a statement to the covered employee. The first returns and statements due under the health law are due the end of February, 2016 for the 2015 reporting year if you file paper forms with IRS, and by the end of March, 2016 if you file the forms electronically.
The forms that ALEs will be required to file with IRS are Forms 1094-C and 1095-C, beginning in 2015.
1094-C is a transmittal form that will be sent to IRS along with copies of all the 1095-Cs provided to your employees. Form 1094-C summarizes the coverage information for IRS included on all Forms 1095-C provided to your employees.
1095-C is an informational return, similar in purpose to a W-2, which is provided to your covered employees to report to them the health coverage offered to and/or provided to them during the year.
If an ALE is required to provide its full-time employees and their dependents coverage that provides minimum benefits and that ALE does not do so, and at least one full-time employee gets an insurance premium tax credit, then that ALE may be required to make an employer shared responsibility payment (in other words, a “penalty”).
The payment is $2,000 (indexed for future years) per full-time employee that is not offered coverage, although the first 30 employees are excluded from the payment computation. At least 95% of the eligible full-time employees must be offered coverage or else the payment will be required. There is transition relief for 2015 as to the computation of the penalty and the percentage of full-time employees that must be offered coverage.
The coverage, reporting, and enforcement provisions under the Affordable Care Act are here and in effect for 2015. Hopefully, if your organization is an ALE, it has been offering coverage as required under the Affordable Health Care Act. If not, then your organization may be subject to the shared responsibility payment as discussed above. In addition, your organization will have to provide detailed reporting to both your employees and the IRS. We recommend that you start gathering all of the information required for the new reporting now because trying to gather the information from current and former employees in January and February will be challenging.
There are many resources available from the IRS on their website for employers and other federal government agencies to help you understand and comply with the health law.
If you have any questions, please get in touch with your Clark Nuber professional.
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