Health care law can present a challenge to employers, who seek to understand and comply with the complexities of the law. The Affordable Care Act (ACA), a.k.a. “Obamacare,” is the current governing healthcare law in the United States. Under the ACA, companies with more than 50 full-time equivalent employees (often referred to as applicable large employers or ALEs) are required to either provide health insurance to their employees or pay a tax penalty for not offering affordable health coverage. In 2017, Congress repealed the individual mandate that required individuals to carry valid health insurance, but the employer requirements for employers with more than 50 full-time equivalent employees are still on the books. Here is what you, as an employer, need to know about the ACA to make sure your company stays legal.
Table Of ContentsUnder the ACA, the Internal Revenue Service (IRS) defines a full-time employee as an employee who works an average of either 1) 30 hours or more per workweek or 2) 130 hours during a month. Employers that have more than 50 employees who meet either of these full-time thresholds are required to comply with the ACA’s healthcare mandate, or pay a tax penalty instead of offering affordable health coverage. But even if employers have fewer than 50 full-time employees, they may still be required to comply with the ACA. This is because the ACA relies on the concept of full-time equivalent employees. According to the concept of full-time equivalent employees, employers must take the number of hours worked by part-time employees in a month and determine how many full-time employees working 30 hours per week it would take to work those same hours. Once employers determine how many full-time equivalent employees they have, they must combine that number with the number of their actual full-time employees to determine whether they meet the ACA’s 50 full-time employee threshold. Employers are not required to include seasonal workers or employees who have health coverage under TRICARE or a VA health program in the full-time equivalent calculation.
An employer has 35 employees who work 30 or more hours per workweek. It also has 30 employees who work on average 20 hours per workweek for a total of about 2,400 hours in a month. To determine whether the employer meets the ACA minimum employee threshold, the Employer must first determine how many full-time equivalent employees it has. To determine how many full-time equivalent employees it has, Employer would take the total number of hours worked by its part-time employees in the month, 2,400, and divide it by the legally recognized number of hours a full-time employee works in a month, 120 hours. 2,400 divided by 120 equals 20. Thus, it would take 20 full-time employees to work the same number of hours actually worked by part-time employees. 20 is the number of full-time equivalent employees. Once it has determined how many full-time equivalent employees it has, the Employer combines this number with the number of its actual full-time employees. This would be 20 35 for a total of 55 full-time equivalent employees. With 55 full-time equivalent employees, the employer is covered by the ACA. The employer has 35 employees who work 30 or more hours per workweek. It also has 20 employees who work on average 20 hours per workweek for a total of about 1,600 hours in a month. To determine whether the employer meets the ACA minimum employee threshold, the employer must first determine how many full-time equivalent employees it has.
Employers must pay a penalty for not offering coverage that is affordable and provides minimum value
If, after calculating the number of full-time equivalent employees your company has, you still find that you have fewer than 50 full-time employees, a different set of rules and responsibilities apply for reporting and taxes.
Businesses defined as small employers by the IRS also have access to special provisions under the ACA. These provisions include the ability to purchase health insurance through the Small Business Health Options Program (SHOP) and, potentially, access to the Small Business Health Care Tax Credit.
Small businesses may be eligible for an IRS tax credit for providing their employees with affordable health insurance coverage, known as the Small Business Health Care Tax Credit. To be eligible for this tax credit, businesses must:
The premium tax credit is a refundable tax credit that low and moderate-income families can use to purchase health insurance through the Health Insurance Marketplace. It applies to individuals, rather than employers. This tax credit is designed to help families with low to moderate-income afford health insurance coverage. The credit can either be applied to the individual’s monthly health insurance premium or to their annual taxes.
Tax credits are considered “refundable” when, if the credit is more than the amount of your tax liability, you can receive the difference as a refund from the IRS when you file your annual taxes. The premium tax credit under the ACA is a refundable tax credit.
In order for individuals to receive the premium tax credit under the ACA, they must not have access to affordable health coverage under an employer-sponsored plan and must not be eligible for coverage under Medicare or another government-sponsored program.
You are eligible for the premium tax credit if: