Tax Guide |
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Starting in 2015, if you are an applicable large employer that does not offer affordable health coverage that provides a minimum level of coverage to your full-time employees (and their dependents), you may be subject to an Employer Shared Responsibility payment if at least one of your full-time employees receives a premium tax credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges, also called a Health Insurance Marketplace (Marketplace). Also, effective in 2015, applicable large employers are required to file information returns with the IRS and provide statements to their full-time employees about the health insurance coverage they offered.
You are an applicable large employer if you employ at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees that is equivalent to 50 full-time employees).
For employers that employ on average at least 50 full-time employees but fewer than 100 full-time employees on business days during 2014, and that meet certain other conditions, no Employer Shared Responsibility payment will apply for any calendar month during 2015. For employers with non-calendar-year health plans, this applies to any calendar month during the 2015 plan year, including months during the 2015 plan year that fall in 2016.
Note, however, that for periods on or after Jan. 1, 2016, the transition relief for 2015 generally is not available.
An employer identifies its full-time employees based on each employee’s hours of service. An employee is a full-time employee for a calendar month if he or she averages at least 30 hours of service per week. 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week. Part-time employees are calculated as full-time equivalents by taking the total hours worked by a part-time employees and dividing by 30. For example, an employer that employs 40 full-time employees (that is, employees employed 30 or more hours per week on average) and 20 employees employed 15 hours per week on average has the equivalent of 50 full-time employees, and would be an applicable large employer.
Seasonal workers are taken into account in determining the number of full-time employees, with certain exceptions. Also, for purposes of determining whether an employer is an applicable large employer, all employees are counted (subject to a limited exception for certain seasonal workers), regardless of whether the employees are eligible for health coverage from another source, such as Medicare, Medicaid, or a spouse’s employer.
The employer determines each year, based on the current number of employees, whether it will be considered an applicable large employer for the next year. For example, if an employer has at least 50 full-time employees (including full-time equivalents) for 2014, it is considered an applicable large employer for 2015. Note that because employers will be performing this calculation for the first time to determine their status for 2015, there is a transition rule intended to make this first calculation easier.
If an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5% of that employee’s annual household income, the coverage is not considered affordable for that employee. Because employers generally will not know their employees’ household incomes, employers can take advantage of one or more of the three affordability safe harbors.
A plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan. The Department of Health and Human Services (HHS) and the IRS have produced a minimum value calculator. By entering certain information about the plan, such as deductibles and co-pays, into the calculator employers can get a determination as to whether the plan provides minimum value. Additionally, there are proposed regulations regarding other methods available to determine minimum value
If an applicable large employer does not offer coverage or offers coverage to fewer than 70 percent of their full-time employees in 2015 (95 percent in 2016 and beyond) of its full-time employees (and after 2015 their dependents), it owes an Employer Shared Responsibility payment equal to the number of full-time employees the employer employed for the year (minus up to 30) multiplied by $2,000, as long as at least one full-time employee receives the premium tax credit. (For purposes of this calculation, a full-time employee does not include a full-time equivalent).
For an employer that offers coverage for some months but not others during the calendar year, the payment is computed separately for each month for which coverage was not offered. The amount of the payment for the month equals the number of full-time employees the employer employed for the month (minus up to 30) multiplied by 1/12 of $2,000. If the employer is related to other employers, then the 30-employee exclusion is allocated among all the related employers in proportion to each employer’s number of full-time employees.
In general, if an employer offers health coverage that is affordable and that provides minimum value to its full-time employees and offers health coverage to the dependents of those employees, it will not be subject to an Employer Shared Responsibility payment if some of its employees still chose to purchase health insurance through a Marketplace or if some of its employees enroll in Medicare or Medicaid.
The Affordable Care Act also requires applicable large employers to file information returns with the IRS and provide statements to their full-time employees about the health insurance coverage the employer offered. The IRS will use the information provided on the information return to administer the employer shared responsibility provisions of the Affordable Care Act. The IRS and the employees of an applicable large employer will use the information provided as part of the determination of whether an employee is eligible for the premium tax credit.
An applicable large employer that sponsors self-insured group health plans also are required to report information about the health coverage they provide. Combined reporting is permitted by applicable large employers reporting both as an applicable large employer and as the provider of a self-insured plan.
An applicable large employer must file information returns with the IRS and furnish statements to employees beginning in 2016, to report information about its offers of health coverage to its full-time employees for calendar year 2015. However, in preparation for the application of the employer shared responsibility provisions beginning in 2015, employers and other affected entities may comply voluntarily for 2014 with the information reporting provisions and are encouraged to maintain or expand coverage in 2014. Returns filed voluntarily will have no impact on the employer’s tax liability.
In general, each applicable large employer may satisfy the information reporting requirement by filing a Form 1094-C (transmittal) and, for each full-time employee, a Form 1095-C (employee statement), or other forms the IRS may designate. An applicable large employer that maintains a self-insured plan may also uses a Form 1095-C to satisfy the combined reporting requirements. Alternative reporting methods for eligible applicable large employers are available.
An applicable large employer is required to report information about the health coverage, if any, offered to its full-time employees, including whether an offer of health coverage was (or was not) made. This requirement applies to all applicable large employers, regardless of whether they offered health coverage to all, none, or some of their full-time employees. Therefore, even if an applicable large employer does not offer coverage to any of its full-time employees, it must file returns with the IRS and furnish statements to each of its full-time employees to report information specifying that coverage was not offered.
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