As tax season has started, we have had many people with concerns over the “Shared Responsibility Payment” as well as the business owner’s responsibility to provide health insurance coverage to their employees.
Let’s start with the Shared Responsibility Payment. If you did not have health insurance for all or part of 2014, you are required to pay a fee for not having insurance. This fee is called the Shared Responsibility payment and goes into a fund to pay for the credit for those who qualify to get assistance with their insurance premiums. So far we have seen payments between $25 and $500. The fee is based on your income and how many months you were uninsured.
What about the responsibility for business owners to provide health insurance? For most small business owners, providing health insurance is not an issue. For 2015, companies with 100 or more full time employees must offer health insurance coverage to full timers or pay a tax. Full time employees are those employed at least 30 hours a week on average. Starting in 2016, firms with 50 or more full time employees will be subject to the tax. Also required coverage will be expanded to include dependents, including kids up to age 26.
The fines for non-compliance are stiff. For 2015, the fine is $2,084 times the number of full time employees less 80. Next year the fine will increase dramatically. There is also an unaffordable insurance tax. This is a fine that companies will receive if the insurance they offer requires the employee to pay a portion of the premium that exceeds 9.56% of his/her wages. Also, the employer must provide at least 60% of the cost of the coverage.
The good news is that most small businesses have fewer than 50 employees. However, if you feel a moral responsibility to help pay for your employees’ health insurance there is one very important thing to understand. Your employees can go on the exchange and get their own health insurance and often get a lower rate and a tax credit. If, as an employer, you want to pay for part or all of the insurance premium, you must be very careful how you do it. You cannot give the employee a health insurance reimbursement or allowance. The only way you can do it, is by increasing their pay. You can give them a bonus or increase their wages by the amount you want to contribute to their insurance. The normal withholding and other payroll expenses will apply. For tax purposes, it will not be considered pre-taxed and what they do with the money is technically up to them.
This is just a brief summary of the employee health insurance issues. If you have questions about your particular situation, please feel free to call us at Soulence. We have the resources to assist you through this complicated Affordable Care Act maze.