How does the Employer Shared Responsibility Provision of the ACA apply to Small Employers

Do I Have To Offer My Employees Health Insurance?

This is a common question among small business owners. The answer depends on how many employees you employ and how many business you own. Let’s dig into the details, and explore other options you can offer your employees if you aren’t ready for a small group health insurance plan.
The Employer Shared Responsibility Provision of the Affordable Care Act (ACA) requires that “applicable large employers,” which includes businesses with 50 or more full-time or full-time equivalent employees offer comprehensive, affordable coverage to employees and their dependents.

 

For business owners who own more than one business, it’s essential to consider the concept of “common ownership,” which can have implications for determining whether separate businesses are considered a single entity under the ACA.

 

Common Ownership, under the ACA, is defined as businesses with common ownership or that are part of a controlled group. These businesses are often treated as a single entity when determining whether they meet the threshold of an Applicable Large Employer. Common ownership typically applies to businesses where the same individual or group of individuals own a significant interest in multiple entities. This means that the total number of employees across all commonly owned businesses is aggregated to assess if the threshold of 50 or more employees is met. It’s a critical consideration for companies with related entities or subsidiaries.

 

For example, Company A and Company B are under the common ownership of individuals Jo and Jane. Company A has 25 full time employees and Company B has 30. Together they employ 55 full-time employees, they would collectively be considered an applicable large employer, and both companies are potentially subject to the Shared Responsibility provisions.

 

Applicable Large Employers who fail to offer Minimum Essential Coverage that is Affordable to their employees and employees’ dependents risk incurring fees from the IRS.

As an Applicable Large Employer, subject to the Employer Shared Responsibility Provision. you have several reporting obligations. These requirements promote transparency and compliance with the ACA’s healthcare coverage standards. These reporting requirements serve both the Internal Revenue Service (IRS) and the employees themselves.

 

Reporting requirements include:

IRS Reporting (Form 1094-C and Form 1095-C): Applicable large employers must file annual reports with the IRS. This includes submitting Form 1094-C, which is an overall transmittal form, and Form 1095-C, which provides detailed information on each employee’s healthcare coverage. These forms help the IRS verify that the employer is meeting their obligations and allows them to assess potential penalties.

Employee Statements (Form 1095-C): Employers are also required to furnish Form 1095-C to each of their full-time employees. This form outlines the specific coverage offered to the employee and their dependents during the tax year. It is essential for employees when filing their individual income tax returns and applying for premium tax credits or other benefits through the Health Insurance Marketplace.

Reporting Deadlines and Penalties for Non-Compliance

Applicable Large Employers must adhere to specific deadlines for filing these forms, which typically fall early in the year following. Timely and accurate reporting is crucial to avoid penalties and to ensure that employees can claim appropriate tax credits and deductions.

 

Penalties for Not Providing Coverage:

If applicable large employers fail to offer affordable and minimum essential coverage to their full-time employees and their dependents, they may be subject to penalties. Here’s how the penalties work:

  • No Coverage Offered: If an employer does not offer any coverage to its full-time employees and at least one of those employees receives a premium tax credit or cost-sharing reduction for coverage obtained through the Health Insurance Marketplace, the employer may be liable for a “no coverage” penalty.
  • The penalty is calculated on a monthly basis for each full-time employee, minus 30 employees. It is incurred, or calculated, for all employees, even if only 1 employee receives subsidies, and even if the employer offered coverage to some employees.
  • In 2023, the penalty amount is $2,870 per year ($239.17 per month) for each full-time employee in excess of 30 employees, subject to certain adjustments.
  • Inadequate or Unaffordable Coverage: If an employer offers coverage that doesn’t meet the ACA’s affordability and minimum value standards, and at least one full-time employee receives a premium tax credit or cost-sharing reduction, the employer may be subject to a different penalty.
  • The penalty is calculated based on the number of full-time employees who receive premium tax credits.
  • In 2023, the penalty is $4,550 per year ($379.17 per month) for each full-time employee who receives a premium tax credit due to inadequate or unaffordable coverage.

    • For more information on these penalties, see Types of Employer Payments and How They’re Calculated on IRS.gov.

    Penalties for Not Filing Reports:

    Failure to file the required reports with the IRS and furnish them to employees can also result in penalties. Here are the key points regarding these penalties:

    1. Failure to File Information Returns (Form 1094-C and Form 1095-C): If an employer fails to file the necessary information returns (Form 1094-C and Form 1095-C) with the IRS, they can incur penalties.
      • The penalty amount for each unfiled or incorrect return may vary based on the size of the employer, the time of filing, and the level of negligence.
      • In general, the penalty for each unfiled or incorrect return can range from $50 to $280 per return, with a maximum annual penalty of $3,392,000 for large employers.
    2. Failure to Furnish Employee Statements (Form 1095-C): Employers are also required to furnish Form 1095-C to their full-time employees. Failure to do so can lead to penalties.
      • The penalties for failing to provide employees with their statements can range from $50 to $270 per statement, with a maximum annual penalty of $3,392,000.

    It’s crucial for employers to comply with both the coverage and reporting requirements under the ACA to avoid these penalties. Accurate and timely filing and reporting not only help employers steer clear of financial consequences but also ensure that employees receive the necessary information to claim tax credits and benefits through the Health Insurance Marketplace. Employers should stay informed about the specific penalty amounts and adjust their practices accordingly to maintain compliance with the law.

    What Are My Options For Offering My Employees Health Insurance?

    There are several options available for small businesses wanting to offer their employees health insurance coverage or help paying for health insurance.

    • Fully Funded Small Group Plans
    • Level Funded Small Group Plans
    • Health Reimbursement Arrangements
    • Health Savings Account Funding
    • Ancillary Products
    Which option or options is best for your employees depends on several variables, including the demographics and health status of your employees, what your primary goal is in offering Employee Health Benefits, and what Tax Credits or Incentives are available to both you and your employees.

    Reach out today to discuss your company’s situation with a Licensed Consulting Agent.

    Schedule Free Consultation
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