Few issues impacting employee benefits have received more press than the Affordable Care Act (ACA). Yet, many employers are unaware of when they will be subject to it, and if they are subject to it, what the impact of the ACA will be on their businesses. Let’s briefly discuss some of the issues that will affect employers in 2015 and 2016.
Will you need to file IRS Form 1095-C?
The IRS has created a new form (IRS Form 1095-C) which discusses whether or not ACA compliant health benefits have been offered to and accepted by employees. Employers who had more than 50 full-time equivalent employees (FTEs) in 2014 must provide employees with IRS Form 1095-C no later than Feb. 1, 2016. Employees will need these forms to file their federal income tax return; employees who don’t get a form could be subject to a personal excise tax. The forms must be provided to all full-time employees who worked at all during 2015. There are substantial employer penalties for failure to provide this form.
To determine if you had 50 FTEs in 2014, look at your IRS Form W-2 for 2014; if you issued fewer than 50 W-2s during 2014, you didn’t have 50 FTEs in 2014 and therefore are not required to provide the IRS Form 1095-C to your employees in 2015. If you had over 50 W-2s in 2014, you would need to run a monthly test to determine how many employees you had each month and the number of hours that they worked. If you had, on average, more than 50 full-time employees during the year, you will need to provide the employees with the forms.
Will you be subject to the ACA in 2016?
If you had, on average, 50 FTEs in 2015, you will be subject to the ACA’s provisions for the 2016 year. Employers who are subject to the ACA face a choice—offer full-time employees at least a standardized level of health benefits at an affordable cost to the employees or potentially face one of two excise taxes.
If you are subject to the ACA in 2016, it is now time to start planning. If you currently offer health benefits, chances are that during the early fall you will be meeting with your health benefit advisor to determine the program(s) offered in 2016. Later in the fall, you will be conducting “open enrollment,” where your employees elect to take or decline coverage—and at that point you must identify which employees are being offered benefits and tell them what their premium cost will be. Those three items (what is offered, how much it costs, who is eligible) are the three keys to ACA compliance or non-compliance.
Should you “play or pay”?
Employers are also faced with the issue of whether compliance with the ACA makes sense—the “play or pay” decision. The basic issue is whether the after-tax cost to the employer to comply with the ACA mandates exceeds the potential excise tax exposure.
- “Play”–The cost of compliance equals the cost of the coverage to the employer (that is, after the employee’s contribution is deducted) multiplied by the number of employees to which the coverage is offered, reduced by the cost of coverage to the employer had the coverage not changed, multiplied by the number of employees who were offered the coverage before the ACA was considered. The after-tax cost should then be calculated.
- “Pay”–The ACA excise tax exposure, assuming that non-ACA compliant coverage is offered would not exceed $3,000 multiplied by the number of employees who either purchase insurance through an exchange or receive a premium tax credit. At best, employers can only guess at the number of employees who would qualify for those benefits.
Skoda Minotti helps employers manage the impact of the ACA. Among the services that we provide are consulting regarding the “pay or play’’ decision and preparation of IRS Form 1095-C. We would be pleased to discuss issues related to the ACA. For more information on this topic, please contact Ted Ginsburg at email@example.com or 440-449-6800.
You can also register for our upcoming free webinar, Preparing for the Affordable Care Act, on Tuesday, Oct 27 at 1:00 pm.