Tax Insights

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Penalties and Relief for the Affordable Care Act

2015 is the first year that the new health care reporting forms are being required to be used to report health care coverage by employers under the Affordable Care Act. These will be due in January of 2016 to report for the 2015 calendar year. Those that are affected are any employers that provide self-insured health coverage. The applicable large employers, ALEs, which are any employers with 50 or more full-time employees, are required to offer full-time employees and their dependents minimum essential coverage. If these forms are not filed, employers may be subject to penalties for failure to file correct information returns and failure to furnish a correct payee statement.

Included with these new requirements are two types of penalties that can be assessed. ALEs that do not offer coverage or offer coverage to less than 95% (reduced to 70% for 2015) of full-time employees and their dependents and at least one employee receives a premium tax credit, is subject to an Employer Shared Responsibility (ESR) payment on a monthly basis. This payment is calculated by multiplying the number of full-time employees by $2,000 with exclusion for the first 30 full-time employees (increased to 80 for 2015). If the ALE does offer coverage to more than 95% (reduced to 70% for 2015) or more of its full-time employees and their dependents, but some of the full-time employees receive a premium tax credit, then the ALE is subject to another type of ESR payment. This is due to the fact that the offered coverage was not affordable or did not provide minimum value which creates the premium tax credit. This ESR payment is $3,000 per employee that received the credit, on a monthly basis.

For 2015, there is some applicable relief from these payments. Those ALEs with 100 or more full-time employees will receive a lower percentage of full-time employees who must be offered coverage or a larger exclusion of full-time employees subject to the $2,000 penalty. Those ALEs with 50–99 full-time employees will have no ESR payment due even if the coverage requirements are not met. However, they are still subject to the ACA reporting requirements.

The Small Business Health Care Tax Credit is available to those small employers who:

  • Employ fewer than 25 full-time equivalent employees during the tax year
  • Pay average wages of less than $50,000 per year
  • Pay at least half of the employee health insurance premiums under a qualified plan offered through a Small Business Health Options Program (SHOP) Marketplace

Those employers who qualify for the credit can use Form 8941 to calculate the credit on the income tax return. The credit can be up to 50% of the premiums the employer paid for the health insurance coverage. However, this credit is only available for two consecutive years beginning in 2014.

By Kelsey Olsen