The Affordable Care Act (ACA) was signed into law in 2010 and since then, there have been a number of adjustments and delays impacting small businesses.
The following is an update on what your small business needs to know about the ACA depending on the size of your business.
Self-Employed Small Business Owner
As a self-employed small business owner or "solopreneur" employing no one but yourself, you are largely unaffected by the ACA.
However, you are impacted by the ACA's "individual mandate" - the requirement that individual Americans carry health insurance or else face a penalty at tax time. To help with the cost, tax credits and subsidies are available to make coverage more affordable -- and many self-employed owners qualify.
The penalty for not having coverage is the greater of $95 per person ($285 per family) or 1% of your yearly household income. But by 2016, the penalties will increase to the greater of $695 per adult ($2,085 per family) or 2.5% of your yearly household income. See: Individual Shared Responsibility Fee - What Happens if You Don't Buy Health Insurance.
Also, as a self-employed business owner, you are able to deduct the cost of your own insurance premiums. See: Health Insurance Tax Deductions for the Self-Employed
What to do now:
If you don't currently have coverage, you will likely pay a fee at tax time. However, you may still be able to get coverage. Even though the open enrollment period for 2014 is closed, you may qualify for a special enrollment period if your family size changes, if you have a significant change in income, or if you recently left a job and lost your health coverage. And if you don't qualify for a special enrollment period, the next open enrollment period starts November 15, 2014. Set yourself a reminder to talk to an insurance agent and/or check healthcare.gov in November.
- Talk to your tax professional about deducting the cost of your own insurance premiums.
Under 50 Employees
If your small business has fewer than 50 full-time employees, you are not required under the ACA to provide health insurance (aka the "employer mandate"). However, many small businesses want to help employees with health insurance, so here are two different approaches to take:
If you go the route of a small group health insurance plan, you may be eligible for small business health care tax credits. To be eligible, you must purchase a group plan through the SHOP Marketplace, be an employer with fewer than 25 full-time equivalent (FTE) employees, pay an average wage of less than $50,000 a year per employee, and pay at least half (50%) of employee health insurance premiums (for full-time employees only).
Another approach picking up steam is to let employees shop for individual coverage, on or off the state Exchanges. Eligible employees can access the premium tax credits. And, the business can contribute a fixed monthly amount to employees' health insurance expenses via a Healthcare Reimbursement Plan (aka a "Pure" Defined Contribution Health Plan).
What to do now:
If you're on the border of 50 employees, make sure you understand how to calculate your number of full-time equivalent employees. See: Does My Small Business Have to Provide Health Insurance?
Understand your options for providing health benefits to employees. With either a small group plan or a "Pure" Defined Contribution Plan, you can start it at any time during the year. Work with your health insurance agent or broker to evaluate options. See: Top 3 Small Business Health Insurance Alternatives for 2014.
50 to 99 Employees
If your business has between 50 and 99 full-time employees, the ACA currently requires you to begin providing health insurance to employees beginning January 2016. This is one-year later than larger employers.
What to do now:
If you're on the border of 50 or 100 employees, make sure you understand how to calculate your number of full-time equivalent employees. See: Does My Small Business Have to Provide Health Insurance?
Work with your health insurance agent or broker to evaluate your options now, as well as in 2016.
If your business currently has 100 or more full-time employees, the employer mandate goes into effect January 2015.
For 2015, if an employer with at least 100 full-time employees (including full-time equivalents) does not offer "minimum essential" and "affordable" coverage -- or offers coverage to fewer than 70% of its full-time employees (and their dependents) -- the employer will owe an Employer Shared Responsibility fee if one of their employees purchases a health plan through the exchanges and receives a federal tax credit or subsidy.
The Employer Shared Responsibility fee is equal to the number of full-time employees the employer employed for the month (minus 80) multiplied by 1/12 of $2,000, provided that at least one full-time employee receives a premium tax credit/subsidy for that month.
What to do now:
If you're on the border of 100 employees, make sure you understand how to calculate your number of full-time equivalent employees and what your potential penalties would be. See: Quick Guide to Calculating Employer Shared Responsibility Fees in 2015.
Decide if you will play (offer health coverage), pay any applicable penalties, or play differently. See this guide to the play or pay decision.
Work with your health insurance agent or broker to evaluate your requirements and options for 2015.
If you're a small business, what questions do you have about the Affordable Care Act? Leave a comment below.
See related articles:
- Health Care Reform Requirements by Company Size
- The Impact of the ACA on Small Employers
- The Ultimate Cheat Sheet On Health Reform for Small Businesses