Although businesses with 50 or more employees won’t have to comply with the Affordable Care Act’s employer mandate until 2015, smaller firms that choose to offer health benefits can begin reaping the benefits of an enhanced tax credit starting next year.
The hard part: figuring if your company qualifies for the credit.
Since 2010, certain businesses--those with 25 or fewer full-time equivalent employees; that pay average annual wages below $50,000, and that pay at least half of the premiums for single health insurance coverage for their employees--have been eligible for a tax credit of up to 35 percent of employer-paid premiums. Starting in 2014, the credit will rise to 50 percent; qualifying businesses will be able to claim the credit for up to two consecutive years.
Under original ACA rules, employers only could claim the credit if they had purchased coverage through a state-run SHOP (Small Business Heath Options Program). But in proposed rules published on August 26 the IRS outlined a transitional option that will come as a relief to employers in states that have been dragging their feet on opening the exchanges. Now, if a small employer offers coverage through a plan that begins on a date other than the first day of its taxable year; if that coverage would have qualified the employer for the credit under the rules applicable before January 1, 2014; and if the employer begins offering coverage through a SHOP exchange on the first day of its plan year that starts in 2014, they can qualify for the full credit for the entire 2014 tax year--even if coverage was purchased outside the SHOP exchange.
OK, that’s a lot to unpack. Fortunately, Inc.com is here to help.
Let’s say your plan year, for insurance purposes, starts on October 1, 2013, while your tax year officially starts on January 1, 2014. Because you and your employees haven’t yet been able to evaluate plan options available through the SHOP Exchange, you purchase ACA-qualifying coverage for your employees through a private broker instead. As long as you get coverage through the SHOP exchange when your plan renews on October 1, 2014, you would be eligible for the tax credit in both 2014 and 2015.
The amount of the tax credit varies based on the size of your workforce and wages. Only businesses with fewer than 10 full-time-equivalent employees and average annual wages below $25,000 would qualify for the full 50 percent credit. Larger companies with higher average wages must use a (slightly complicated) formula to determine what size credit they qualify for.
Eileen Elliott, an attorney specializing in health care issues at the Burlington, Vermont-based law firm Dunkiel Saunders is advising business owners not to be discouraged by the potential paperwork: “For those employers that think they could be eligible for this, go talk to your accountant to figure it out, because it’s worth real money,” she says.
And maybe a lot more than you realize.
The two-consecutive-year limit on the tax credit only applies to coverage for 2014 and beyond. “If a small business provided insurance and paid a percentage of the premium that would have earned them a tax credit for 2010, 2011, 2012, and 2013, they can go back and file amended returns to receive credit for those years, too,” says Elliott. “There’s been so much politics and lack of understanding that a lot of small employers haven’t taken advantage of this.”