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Top Three Things Small Businesses Should Know About the Affordable Care Act

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Top Three Things Small Businesses Should Know About the Affordable Care Act

By Meredith K. Olafson, SBA Official
Published: January 25, 2013 Updated: January 25, 2013

 

The Affordable Care Act will help small businesses by lowering premium cost growth and increasing access to quality, affordable health insurance.   Depending on whether you’re a small employer or a larger employer, different provisions of the Affordable Care Act may apply to you as described below.                                           

1.  Businesses with Fewer than 25 Employees- Small Business Tax Credits

The Affordable Care Act does not require that businesses provide health insurance, but it offers tax credits for eligible small businesses that choose to provide insurance to their employees.  To qualify for a small business tax credit of up to 35% (up to 25% for non-profits), you must have:

  • Fewer than 25 full-time equivalent employees
  • Pay average annual wages below $50,000
  • Contribute 50% or more toward employee health insurance premiums

Beginning in 2014, this tax credit goes up to 50% (35% for non-profits) and is available to qualified small businesses who participate in the Small Business Health Options Program (SHOP) Exchanges.

2.   Businesses with 50 or Fewer Employees- Affordable Insurance Marketplaces

The Affordable Care Act does not require that businesses provide health insurance, but beginning in 2014, small businesses with generally 50 or fewer employees will be able to purchase coverage through SHOP , competitive marketplaces where small employers can go to find health coverage from a selection of providers.  The SHOP Marketplaces and Individual Marketplaces for those who are self-employed open on January 1, 2014. Open enrollment begins on October 1, 2013.  SHOP will offer small businesses increased purchasing power similar to that of large businesses.

3.  Businesses with 50 or More Employees- Employer Shared Responsibility Provisions

Under the Affordable Care Act, the Federal government, State governments, insurers, employers, and individuals share the responsibility to reform and improve the availability, quality, and affordability of health insurance coverage in the United States. Employers are not required to provide coverage to their employees under the Affordable Care Act.   However, beginning in 2014, businesses with 50 or more full-time employees (or full-time equivalents) that do not offer affordable health insurance that provides a minimum level of coverage to substantially all of their full-time employees (and their dependents) may be subject to an employer shared responsibility payment if at least one of their full-time employees receives a premium tax credit to purchase coverage in an insurance Marketplace.  A full-time employee is generally one who is employed an average of 30 or more hours per week. 

If you meet or are close to this threshold level of full-time employees, it’s important to understand how these rules may apply to you and how the employer shared responsibility payments could be triggered.   For more guidance on the employer shared responsibility payments, refer to this FAQ from the IRS.

About the Author:

Meredith K. Olafson

SBA Official

Meredith K. Olafson is Senior Policy Advisor for the U.S. Small Business Administration where she oversees the agency's education and outreach efforts around health care and the Affordable Care Act.

Comments:

Any information available on existing or planned a Small Business Wellness Affordable Care Community? Wellness programs in small businesses are so much less prevalent and robust than at large companies but it's too difficult for individual small businesses to set up a vibrant wellness program on their own.
Hello, and thank you for your question. This fact sheet at Healthcare.gov includes information about Wellness Programs under the Affordable Care Act: http://www.healthcare.gov/news/factsheets/2012/11/wellness11202012a.html
it appears that only companies with 25 or fewer FTE qualify for tax credits. How is this fair? Who can my son talk to about how to make this work well BEFORE the deadline for implementation? The promised information is too little, too late.
Really I learned good and essential information. I saved it my laptop. This post was edited to remove a link. Please review our Community Best Practices (http://www.sba.gov/community) for more information about how best to participate in our online discussions. Thank you.
Meredith, Do you have any information on how Free Health Clinics should comply with the new Affordable Health requirements. Thank you.
Hi! Thanks for your comment. You can find more information about how the Affordable Care Act will affect community health centers at http://www.healthcare.gov/news/factsheets/2010/08/increasing-access.html
Nice information you have shared there as by reading this post employers and employees both can fully aware about this act and its requirements.
Hi Merideth, I'm in the same boat as Luann Maraglmo. I have a very small company, but one of my employees makes over $50,000. This incentive would really help.
Hello and thank you for your comment. We encourage you to take a look at IRS’s Q&As (http://www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-Questions-and-Answers:-Determining-FTEs-and-Average-Annual-Wages) on calculating average annual wages under the Small Business Health Care Tax Credit to help determine whether you might be eligible. As noted below, in general, the credit applies to small businesses that have fewer than 25 full-time equivalent (FTEs) employees, who pay an average wage of less than $50,000 a year, and who pay at least half of their employees’ health insurance premiums.
Is there a healthcare exchange/marketplace for small businesses? My son owns a home health care agency that employees 72 people. All his income comes from Medicaid. Paying the $2,000 penalty per employee will bankrupt the company; it is three times his salary. He says he is not allowed to purchase affordable coverage off the exchange for individuals, and his attorney says actual coverage for small business would run $6,000 per employee. This makes no sense. It defeats the purchase of trying to get everyone covered. Surely there is a way for small businesses with a lot of service employees but not a huge profit margin to pool buying power with other companies in similar straits. Please help! I have been calling DC all day to try to talk to a person and get voice mail everywhere.

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