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What Employers Need to Know About the
Affordable Care Act or "ACA" ("Obamacare")

According to the Affordable Care Act website, this law will help small businesses pay less for their employees' health care plans. (In the past, small businesses have paid an average of 18% more for heath insurance than big businesses).

Definitions

The term "small business" usually refers (according to the Small Business Administration website) as a company with less than 500 employees and less than $5 million in annual revenue. However, for purposes of the ACA, a small business is one with less than 50 Full Time Equivalent Employees.

A Full-Time Employee works an average of 30+ hours per week

However, the ACA is based on Full-Time Equivalent Employees, which is a formula combining the number of full-time employees with a ratio of the number of part-time employee hours divided by 120.

It is the number of Full-Time Equivalent Employees (called "FTEs" from now on) that determines whether or not your business is mandated to offer health insurance under this new law. If the number of FTEs exceeds 50, you are mandated to offer health insurance to your full-time employees.

  Example:
  Let's say you own a tax accounting office. You employ 4 full-time employees. However,
  during the tax season, you hire on an extra 55 part-time employees whose total
  aggregated hours worked equals 5890. The following would be a calculation of your FTEs:

  4 full-time + 5890* hours divided by 120 hours = 53 FTEs

  According to the Affordable Care Act, since your FTE number exceeds 50, you are required to
  offer health insurance to your four full-time employees.
  * Don't count more than 120 total hours for each part-time employee

Small Business Health Care Tax Credits Available

If you are a small business, you're not mandated to provide health insurance, but you could receive a tax credit if you do offer it.

To be eligible for the credit, the small business must:

  • Have fewer than 25 full-time equivalent employees;
  • Pay an average wage of less than $50,000/year;
  • Pay at least half of employee health insurance premiums;
  • Have purchased coverage through the small business health options (also known as the SHOP marketplace).

How much is the credit?

  • The credit is up to 50% of premiums paid (35% of premiums paid if the business is a tax-exempt entity). It works on a sliding scale...the fewer Full-Time-Equivalent employees, the higher the percentage of credit.
  • The credit is available to eligible employers for two consecutive years.

This credit is "refundable," which means that a qualified business is eligible to receive it even if it has no taxable income.

This link has more information: https://www.irs.gov/Affordable-Care-Act/Employers/Small-Business-Health-Care-Tax-Credit-and-the-SHOP-Marketplace

Posted on November 30, 2015


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