Although the Affordable Care Act does not require companies to provide employee health insurance, business owners may want to pay special attention to the law’s tax implications.

Large employers that do not offer workers a minimum level of essential health coverage could be hit with costly penalties. Meanwhile, financial incentives may be available to certain small employers that choose to provide employee health coverage.

For many businesses, the presence of certain staffing thresholds may also influence hiring decisions.

Penalty Phase Ahead

Starting in 2014, employers with 50 or more full-time workers (“full time” is considered 30 or more hours per week) may have to pay an annual nondeductible penalty for either not offering “minimum essential” health insurance or offering health plans that are more expensive than the coverage available through the government-run exchanges. (Part-timers’ hours are included in monthly calculations to determine whether the employer is a “large employer.”)

The penalty will amount to $2,000 per full-time employee, after the first 30 exempted employees. A business could be subject to the penalty if one worker obtains coverage on his or her own through an exchange and receives premium assistance or a tax credit — even if the employees had the opportunity to enroll in an employer-provided plan.

Claiming a Credit

Eligible small businesses that pay at least 50% of their employees’ health insurance premiums may be eligible for a temporary tax credit that could offset a portion of their costs.

2013: Firms that employ 10 or fewer workers and pay an average annual wage of less than $25,000 may be eligible for the maximum tax credit, which is equivalent to 35% of employer contributions toward employee health coverage. For firms with between 10 and 25 employees, the credit is reduced as the number of employees and/or average wages increase, and the credit disappears for firms with more than 25 workers or those that have an average annual wage exceeding $50,000. The credit does not apply to health coverage for owners or family members on staff, and they are not counted as employees.

2014–2015: The maximum tax credit increases to 50% of employer-paid health premiums.

Now more than ever, it could be important to consult your tax professional to navigate the rules and your options.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2013 Emerald Connect, Inc.

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