Beginning in 2015, if you employ at least 100 full-time employees or full-time equivalents (and after 2015, at least 50 full-time employees or equivalents), you may become subject to the employer mandate that was enacted as part of the Affordable Care Act (ACA), and if you fail to meet its requirements, you may owe a nondeductible excise tax.
You could potentially be subject to the excise tax, if any of your full-time employees are certified, as described below, as having received “health care assistance,” and you either: (1) do not offer health care coverage for all of your full-time employees; or (2) offer “minimum essential” coverage under your group health care plan that either is not “affordable,” or does not provide “minimum value” to your employees.
If you do not offer health care coverage to your full-time employees, the excise tax will be $166.67 for any month, i.e., 1/12 of $2,000 for 2015, times the number of your full-time employees during any month, reduced by a 80-person threshold (30 in 2016).
If you do offer health care coverage to your employees, but it is not affordable or does not provide minimum value, the excise tax will be $250 for any month, i.e., 1/12 of $3,000 for 2015, times the number of your full-time employees for any month who receive health coverage assistance, reduced by the number of those employees in a “limited non-assessment period,” and the number of your employees who were offered the opportunity to enroll in “minimum essential coverage” under your group health plan that meet the requirements of employer mandate. This is further reduced by a 80-person threshold (30 in 2016). In addition, the amount of any excise tax that you may owe as a consequence of this aspect of the excise tax cannot exceed the amount of the excise tax owed if you failed to offer health care coverage at all, as described above.
In the event you have an employee who received health care assistance outside your company, IRS is required to notify you in accordance procedures that ensure that you will have the opportunity to respond before the issuance of any notice and demand for payment of the excise tax.
The contact from IRS for a given year will not occur until after your employee’s individual tax return is due for that year, and after the due date for you to file information returns identifying your full-time employees and describing the health coverage that you offered, if any. If you are an applicable large employer with 50 full-time employees or equivalents, you are required to file information returns beginning with calendar year 2015.
In addition to the employer mandate, in the event your group health plan failed to certain requirements imposed by ACA (e.g., no pre-existing condition limitation, no annual or lifetime restricted limits, dependent coverage up to age 26, coverage for preventative services etc), you will be subject to an excise tax of $100 a day per employee.
Finally, a health insurance premium reimbursement arrangement with employees will not qualify as offering health care coverage, and can no longer be a tax-free benefit to employees, unless fully integrated with an ACA compliant plan.
The above is a very simplified explanation of the employer mandate and the applicable excise taxes, which can be draconian. If you would like to discuss how these requirements may impact your business, please contact us at your earliest convenience. For additional info, you can check here and here.
Written by Mike Musson, CPA, Partner