All employers have transitional relief as new regulations around the employer mandate have come out, but if you are a business owner with at least 50 and less than 100 full-time equivalent (FTE) employees, the transition relief from the Internal Revenue Service (IRS) is going to have the most clear and positive impact on your company.
The employer mandate portion of the Affordable Care Act imposes significant administrative burden on companies and potentially onerous penalties for non-compliance. All companies with 50 or more FTE employees are required to provide affordable health coverage, providing minimum benefits to substantially all of their employees. If they do not provide this, the employees may go to the exchange and receive a premium tax credit, and the employer will have to pay either a penalty of $3,000 per employee who receives a credit, or $2,000 for all employees (depending on violation).
The government recognizes the difficulties of initial implementation of these laws and provided all companies an extra year (from 2014 to 2015) to begin complying. This extra time has given companies more time to understand the law and to develop the best procedures for compliance.
Small to Mid-Size Employer Relief (50-99 Employees)
Larger companies have the resources to more readily adapt to the changes in this law when compared with small companies. As a result, the IRS has given companies with less than 100 and more than 50 FTE employees an extra year before they will have to comply with the law. This relief is provided for all of 2015 plus, in the case of any non-calendar plan that begins in 2015, the portion of the 2015 plan year that falls in 2016. It is important to note the following qualification requirements:
- The employer cannot reduce the size of their workforce in 2014 to get under the 100 FTE employee mark.
- The employer cannot eliminate or significantly reduce the health coverage that it offered when the regulations on the transitional relief were released.
It is important to note that the employer will have to certify that they are under the 100 employee threshold to the IRS.
Mid-Size to Large Employer Relief (100+ employees)
While larger employers will not receive the extra year without penalties, there are also provisions that offer some relief that can help employers avoid the more onerous penalties as they begin complying with the new law.
The second major form of relief affects when the penalty applies for failing to meet coverage thresholds. For 2015, an employer must offer coverage to 70% of its employees rather than the original threshold of 95% to avoid the onerous $2,000 per employee penalty. In 2016, the threshold will revert to 95%. This penalty is different from the $3,000 penalty if the employer-sponsored health coverage is not "affordable". The “affordable” penalty applies when a worker obtains coverage through the market place (i.e., by purchasing health coverage from one of the insurance exchanges) and receives a credit. The "affordability" penalty still applies for 2015.
Understanding the relief offered is a valuable tool for developing a plan for coverage of your employees and developing the systems necessary to comply with the reporting requirements of the new law.
The blog was co-authored by Eritt Sinkko:
Eritt Sinkko is a Tax Staff Accountant at Meaden & Moore. He provides tax services to clients in various industries and assists with preparing all aspects of federal, state and local compliance for clients as well as assisting with tax planning.