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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:

Thank you for your question. We encourage individual small business owners to consult their tax and legal advisors about how these matters relate to their specific business circumstances. There are also a number of resources to help small employers better understand the Affordable Care Act and what it means for them. We urge businesses to visit Healthcare.gov (http://www.healthcare.gov/marketplace/small-businesses/index.html), the portal maintained by the U.S. Department of Health and Human Services, to get the most current information on coverage options and eligibility for the new small business health insurance Marketplace (also known as “SHOP” or Small Business Health Options Program), which will open on January 1, 2014, with enrollment beginning October 1, 2013. You can stay connected to insurance coverage options in your particular state by signing up for text or email alerts at signup.healthcare.gov (https://signup.healthcare.gov/?email=Email+Address&x=72&y=19). Businesses should also consult IRS’s Questions and Answers on the Employer Shared Responsibility provisions for more in-depth coverage of these rules (http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act).
Reading through the link you provided, it appears that small business owners need to wait until October 1, only THREE MONTHS before the deadline, to "find out" if there really IS affordable coverage for their employees. That is way too late, for a company that may go bankrupt, don't you think? Also, 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. Surely other owners are having the same issues. Is it true that McDonald's got a waiver, an exemption of some kind? If that large corporation can appeal to some agency, why can't a small business owner with MUCH fewer resources than McDonald's?
My son ALREADY contacted his tax advisors and lawyers. They told him "affordable coverage" per employee is $6,000, three times what the penalty is. He cannot even afford the penalty, which, for 72 employees is roughly three times what he makes in salary. Karen Mills, in her online video, SAYS that there is a small business marketplace/exchange, where small business owners can pool their resources to get more affordable coverage. I have spent literally days researching this for him, as well as making phone calls, and no one knows anything about this, or else I get the runaround. The goal is to provide affordable care, not pay penalties. But if the penalties alone will bankrupt a service business that is dependent on Medicaid (not a high profit company) and force it to default on an SBA loan, something is wrong with this picture! Please ask Karen Mills what she was referring to, and how my son can participate. I am sure his is not the only company that is dependent on MANY employees to provide one-on-one care, but which does not generate a huge profit. I cannot believe the President or the SBA are fine with companies folding all over the nation, putting people out of work and forcing families into bankruptcy. That is not the goal of health reform, which we all supported and hoped would HELP small business do the right thing. Something is very wrong with this picture. We need Karen Mills to provide real information and help ASAP!
I am not sure where your son's home healthcare agency is located; however, what I can tell you is that the act does have ramifications for home health providers that have a large workforce of per diem employees who work part time on an hourly or visit basis. Knowing a bit about the industry, having worked in it for about 2 decades, I can tell you that it is very likely that not all of the agency's employees are actually full time employees. Thus, even though the FTE count may be at 50 or higher, the act requires that a large employer provide coverage only to its full time employees. My guess is that your son's agency employs many people on a 'per diem' basis as most home health agencies do and that the true FTE count may be less than 50 which would exempt him from the provisions of the Affordable Care Act's requirements. We work with many home health agencies and would be happy to share further insight after receiving a bit more information about the size of the agency and its location. No obligation to you -- just thought I would try to be helpful.
Is there any tax break/incentive for an employer with less than 25 employees, but the average salary is over $50k?
Luann, thank you for your question. We encourage you to visit IRS.gov (http://www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-Questions-and-Answers:-Who-Gets-the-Tax-Credit) for the most current, comprehensive list of tax provisions and credits under the Affordable Care Act.
How will the 25 employee limit work if we start the year with under 25 but end up with more than 25?
Hello, thank you for reading our Health Care blog and for your question. I assume it relates to eligibility for the Small Business Health Care Tax Credit, which applies to small businesses who 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. In general, IRS guidance indicates that to determine FTEs for the purposes of this credit, employers should add up the total hours of service for which the employer pays wages to employees during the tax year (but not more than 2,080 hours for any employee) and divide by 2,080. If the result is not a whole number, round to the next lowest whole number. If the employer does not have fewer than 25 FTEs for the tax year, the employer will not be eligible to receive the credit. We encourage you to visit IRS.gov (http://www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-Questions-and-Answers:-Who-Gets-the-Tax-Credit), which has a number of good resources to help employers determine if they meet the qualifications for this tax credit, including detailed Q&As (http://www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-Questions-and-Answers:-Determining-FTEs-and-Average-Annual-Wages) on how to calculate the number of FTEs.
Thank you for this information Merideth. Clarification on this is very important to business owners as well as employees.
Calgary Moving Company, we appreciate your response and hope you will continue to follow our blog. You can also visit our health care web page, sba.gov/healthcare (http://www.sba.gov/healthcare), dedicated to educating small business owners about the Affordable Care Act. The site is designed to serve as a gateway for small business owners, providing important information specifically to small businesses about the Affordable Care Act, and connecting them with our federal partners responsible for implementing the law, such as the U.S. Department of Health and Human Services.

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