In addition to the potential fines imposed on employers who fail to comply with the upcoming provisions and rules mandated under the Affordable Care Act (ACA), there are certain tax exemptions available to a select group of businesses with 50–99 full-time employees that meets specific criteria. You may find that your current benefits don’t meet minimum requirements to comply with the ACA. The money saved from a tax exemption could be used to bring your plan up to compliance.
On January 1, 2016, all employers with 50 or more employees will need to provide health care to their employees to avoid fines associated with the employer mandate. However, in 2015, some businesses will qualify for a tax exemption known as “transition relief.” This period allows employers additional time to bring their plans up to compliance and understand all parts of the law that affect them.
The Transition Relief Tax Exemption
Under the transition relief tax exemption rule, a business with 50–99 full-time employees can postpone their compliance with the provision until 2016, granted they meet certain requirements:
- The employer must employ the equivalent of 50–99 full-time employees averaged across at least a six-month period during the 2014 fiscal year.
- The employers are prohibited from workforce size reductions or cuts in overall work hours in 2014 unless they do so for “bona fide business reasons.”
- There can be no reduction in health coverage offered to employees compared to what was offered on February 9, 2014.
- The employer must submit a form that certifies that their business meets the above conditions.
The transition relief tax exemption is applicable to any month during 2016 that is a part of the 2015 plan year, as long as the employer has not made any modifications to their plan after February 9, 2014, and the employer falls within the required business size. The Small Business Health Operations Program website provides information as well as a calculator to help you assess the size of your workforce in compliance with the ACA. The U.S. Treasury also provides some additional information on transition rules, as well as answers to some frequently asked questions, at IRS.gov.
Possible Tax Credit
For employers who don’t qualify for transition relief, there is a tax credit designed for small businesses that may also benefit some employers of 50–99 full-time employees.
A small business that employs fewer than 25 full-time-equivalent employees with average annual wages below $50,000 is eligible for a tax credit to assist with the cost of employee premiums. As tax credits are retroactive and applicable as far back as the 2010 tax year, employers with currently 50 or more employees that have fallen into this category in the past can still claim their health insurance tax credit for any year since 2010.
Health care coverage plans are the most coveted and sought-after benefit of employee compensation packages. Providing workers with some form of employment-based health care options also keeps companies competitive within their industries. Utilizing tax exemptions to cover the cost of these benefits is sound business; it shows that health care as an expenditure can earn a good return if companies navigate regulations smartly.