Client Letter: PPACA - Overview (Businesses) 2012
Dear [client name]:
The Patient Protection and Affordable Care Act (PPACA) has several provisions that will affect you as an employer. While some of the law's provisions have already taken effect, many of the provisions will begin taking effect in 2013, 2014, and later years. Below is a summary of some of the more significant provisions that may be of interest to you.
Beginning in 2013, for a health flexible spending arrangement (FSA) to be a qualified benefit under a cafeteria plan, the maximum amount available for reimbursement of incurred medical expenses of an employee, the employee's dependents, and any other eligible beneficiaries with respect to the employee, for a plan year (or other 12-month coverage period) is $2,500.
Under PPACA, an "applicable large employer" is subject to certain "shared responsibility" requirements. Under those requirements, an applicable large employer that (1) does not offer coverage for all its full-time employees, (2) offers minimum essential coverage that is unaffordable, or (3) offers minimum essential coverage that consists of a plan under which the plan's share of the total allowed cost of benefits is less than 60 percent, must pay a penalty if any full-time employee is certified to the employer as having purchased health insurance through a state exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee.
An employer is an applicable large employer for any calendar year if it employed an average of at least 50 full-time employees during the preceding calendar year. An employer is not treated as employing more than 50 full-time employees if the employer's workforce exceeds 50 full-time employees for 120 days or fewer during the calendar year and the employees that cause the employer's workforce to exceed 50 full-time employees are seasonal workers. A seasonal worker is a worker who performs labor or services on a seasonal basis, including retail workers employed exclusively during the holiday season and workers whose employment is, ordinarily, the kind exclusively performed at certain seasons or periods of the year and which, from its nature, may not be continuous or carried on throughout the year.
The penalty for any month is an excise tax equal to the number of full-time employees over a 30-employee threshold during the applicable month multiplied by one-twelfth of $2,000. In the case of persons treated as a single employer under the provision, the 30-employee reduction in full-time employees is made from the total number of full-time employees (i.e., only one 30-person reduction is permitted per controlled group of employers) and is allocated among such persons in relation to the number of full-time employees employed by each such person.
For example, say that in 2014, you fail to offer minimum essential coverage and have 100 full-time employees, 10 of whom receive a tax credit for the year for enrolling in a state exchange-offered plan. For each employee over the 30-employee threshold, you would owe $2,000, for a total penalty of $140,000 ($2,000 multiplied by 70 ((100-30)). This penalty is assessed on a monthly basis. Thus, the monthly penalty would be one-twelfth of $140,000. For calendar years after 2014, the $2,000 dollar amount is increased by the percentage (if any) by which the average per capita premium for health insurance coverage in the United States for the preceding calendar year exceeds the average per capita premium for 2013.
Small Business Tax Credit
PPACA provides a tax credit for a qualified small employer for nonelective contributions to purchase health insurance for its employees. Although the credit took effect in 2011, the amount of the credit increases from 35 percent (25 percent for tax-exempt organizations) of eligible premium payments to 50 percent (35 percent for tax-exempt organizations) in 2014.
Excise Tax on High-Cost Employer-Sponsored Health Coverage
Beginning after December 31, 2017, PPACA imposes an excise tax on certain health insurance providers for any excess benefit provided by an employer to an employee with respect to employer-sponsored health coverage. The excise tax is imposed pro rata on the issuers of the insurance. In the case of a self-insured group health plan, a health FSA or a health reimbursement arrangement (HRA), the excise tax is paid by the entity that administers benefits under the plan or arrangement. Where the employer acts as plan administrator to a self-insured group health plan, a health FSA or an HRA, the excise tax is paid by the employer. Where an employer contributes to a health savings account (HSA) or an Archer MSA, the employer is responsible for payment of the excise tax, as the insurer.
Please call me at your convenience if you wish to discuss these provisions or any other issue regarding employee health insurance.
[Your Name, Your Firm]
*CIRCULAR 230 DISCLOSURE: Pursuant to Regulations Governing Practice Before the Internal Revenue Service, any tax advice contained herein is not intended or written to be used and cannot be used by a taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.