There’s no more room for procrastination regarding Affordable Care Act (ACA) implementation. Now is the time for small business owners to be sure they understand how the ACA affects them. The Pennsylvania Institute of Certified Public Accountants offers some insight.
Must you provide health insurance?
A survey by eHealth Insurance shows that confusion still surrounds the ACA. Nearly 70 percent of small business leaders say they aren’t sure if they will have to provide insurance for their employees. The ACA does not require all employers to provide health insurance for their employees. The Employer Responsibility provision of the ACA applies to businesses with more than 50 full-time workers.
2013 ACA Guidance
Here is a list of ACA action items:
* Reporting employer-provided health coverage on form W-2
For employers who issue more than 250 W-2 forms, the ACA requires the cost of coverage to be reported under an employer-sponsored group health plan on their employees’ W-2 forms.
This requirement is optional for employers with fewer than 250 employees.
Many employers are eligible for transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement.
According to the IRS, the amount reported does not affect tax liability, as the value of the employer-excludible contribution to health coverage continues to be excludible from an employee’s income, and it is not taxable.
The reporting is for informational purposes only, to show employees the value of their health-care benefits so they can be more informed consumers.
* Health FSA contribution limits.
As of Jan. 1, there is a $2,500 limit on pretax employee contributions to health-care flexible spending accounts (FSAs) under the ACA. The $2,500 limit is effective for plan years starting Jan. 1, not the taxpayer’s tax year. Employers with fiscal year FSAs may keep higher reimbursement limits in effect through the end of their 2012-2013 plan year. Employers may adopt retroactive amendments to impose the $2,500 limit before Dec. 31, 2014.
* Medicare Part D subsidy deduction
Effective Jan. 1, the deduction for the portion of health-care expenses that are reimbursed to the employer through the Medicare Part D subsidy program will no longer be available.
The retiree drug subsidy will remain in existence; however, an employer’s ability to deduct the amount of the subsidy will end. This change increases an employer’s income-tax liability, in effect increasing the employer’s cost of providing prescription drug coverage to retirees.
* FICA Medicare tax increase
For tax years beginning after Dec. 31, 2012, the FICA Medicare tax rate will increase by 0.9 percent for wages over $200,000 ($250,000 for married couples filing jointly). This increases the employee’s portion of the FICA Medicare tax from 1.45 percent to 2.35 percent for wages over $200,000 ($250,000 for married couples filing jointly). Employers are required to collect the employee’s portion of this FICA Medicare tax.
* Notice of state insurance exchanges
As of March 1, plans must provide notice to employees and new hires of upcoming state insurance exchanges. Gov. Corbett stated that Pennsylvania will not build its own insurance exchange, consequently, the federal government will administer the exchange. Additional guidance in this area is expected.
* Will you pay a penalty?
You may have heard that employers will have to pay a penalty — also referred to as the shared responsibility provision — if they don’t provide health insurance for their employees. This will not apply to most small businesses. Employers with fewer than 50 full-time employees are not subject to the shared responsibility provision that takes effect Jan. 1, 2014. In addition, if you have at least 50 full-time employees but no employee receives an individual premium tax credit or cost-sharing reduction (both based on income), there’s no penalty — whether or not you offer health insurance.
* Potential tax credits
As a result of the ACA, some small businesses may be eligible for a health-care tax credit this year. If you have up to 25 employees, pay average annual wages below $50,000, and provide health insurance, you may qualify for a small business tax credit of up to 35 percent (up to 25 percent for nonprofits) to offset the cost of your insurance.